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The US Dollar is holding within tight margins as investors are showing discretion ahead of the US Midterm elections that take place today.
The Dow closed up 190.87 points at 25,461.7 and the S&P rose 15.2 points closing at 2738.31 led by the financial and energy sectors.
The Nasdaq fell 0.38% lower at 7328.85 as Apple and Amazon both fell more than 2%
Apple has had its second downgrade since its earning report last week, as Rosenblatt Securities followed Bank of America Meryll Lynch in downgrading Apple from buy to neutral. After this second downgrade, the stock fell 2.8% to $201.59, accumulating a loss of 9.2% since the earnings report.
Berkshire Hathaway earnings beat expectations after announcing a $1billion buy-back, sending a strong signal to the market, and closing on Monday at $216.24, up 4.68%
Italian Bank shares have suffered a hit as Banco BPM fell 3.4%, UniCredit fell 1.6%, Ubi Banca fell 1.8% and Intesa Sanpaolo fell 2.2% on the back of Goldman Sachs downgrade on Friday. The drop in Italy’s main banks shows a continued uncertainty of the country´s short-term future as the government continues to challenge the European fiscal rules.
Inflation has risen 15% yoy in Turkey after pressure to lower interest rates in order to induce spending and economic growth to overcome the country´s “currency crisis”.
Uranium prices have hit a 2.5 year high as producers have started to invest in new plants as the demand for nuclear power increases. The price of Uranium has risen by 40% from its lows in April.
Crude oil prices continue to fall as continued sanctions and concerns over economic slowdown take their toll on carb fuel demand.
Asian overnight: A mixed Asian session has seen the Chinese markets providing the sour note on an otherwise bullish period. Japanese household spending tumbled to -1.6% against expectations, while the RBA kept rates unchanged as widely predicted. However, with recent volatility to consider, the session has been a largely positive and stable one for Japanese and Australian stocks in particular.
UK, US and Europe: The midterms are the general elections that are held near the mid-point of a president's four year term of office, it is a combination of elections for the US Congress, governorship and local races. The results will be seen as a sentiment towards Trump's presidency and his accomplishments, and historical results show that disgruntled voters use the midterms to punish the party in power.
Whilst the Us economy is booming with low unemployment rates, Trump's tax cuts for corporations have increased the country's deficit by 33% in the last year. Immigration will be a decisive issue in the voting taking place today, as the Democrats have tried to pull in minority votes by criticizing Trump's "zero-tolerance" policy towards immigration.
It is expected that the markets have already factored in an increase in “blue representatives” as it is expected that Democrats will regain control of the House of Representatives and the Republicans will maintain the Senate, resulting in a government gridlock, which has historically seen positive reactions from the US equities markets. The extent of the gains will depend on the potential change in the House as it has decision over social and economic structures. A result that gives the Republicans full control could be seen as positive for the equity market as there could be further fiscal stimulus and tax cuts. On the other hand, if the democrats gain control of both the House and Senate, which is seen as less likely, would likely lead to a negative sentiment in US equities as they could reverse some of the policies in place to boost the short-term economy. An equally impactful situation on the markets would unfold if the future representatives is left unclear after the elections as uncertainty would affect the market sentiment.
It is likely that the US Dollar could rally if the result of the elections give full control to the Republicans as Trump's economy boosting policies will continue. On the other hand, the US dollar is expected to fall in the short-term if the elections result in a political gridlock, with the dollar taking further hits if the Democrats regain full control.
Economic calendar - key events and forecast (times in BST)
Source: Daily FX Economic Calendar
21.45pm - NZD Unemployment rate for the 3rd quarter: expected to fall from 4.5% to 4.4%.
Corporate News, Upgrades and Downgrades
Wm Morrison saw Q3 sales rise 5.6%, with positive like-for-like for three-years. Interestingly, the wholesale business is also a big performer, growing 4.3%. Same store growth came in at 1.3%.
Randgold Resources saw Q3 profitability rise after a round of cost cutting (down 10%), with profits for the three months to September rising 21% on-year to $73.2m. Much of that period saw the company’s Tongon mine in Ivory Coast on strike. Randgold shareholders will vote on Wednesday after a takeover bid from Barrick Gold.
DS Smith expects to see a first-half operating profit well ahead of the previous year's result, as the company continues to raise prices to account for increased input costs.
KPN upgraded to Buy from Neutral at BofAML
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Yesterday saw further pessimism from corporate giants as the likes of Jaguar Land Rover, Macy's Inc and BlackRock Inc cut profit forecasts.
Geely Group halves 9.7% stake in Daimler AG.
Virgin Atlantic and Stobart Group to buy Flybe for £2.2million after Flybe profit warning saw shares prices tumble in October 2018. A fall from which it hasn't recovered.
Trump announced intention to bypass Congress by declaring a national emergency in order to fund wall. This comes as government shutdown reaches day 20.
S&P 500 rose 0.4% yesterday resulting in first 5 day increase streak since September 2018. The Dow followed suit posting a 5 day increase.
Hitachi shares jump 8% after The Nikkei Asian Review reported that the company would be likely to suspend all work on the UK nuclear plant, though Hitachi have stated that no formal decision has yet been made.
Oil heads for biggest weekly gain in over 2 years, Brent Crude up 8.4% following Saudi Arabia pledge that a producer coalition will maintain market balance.
Yesterday saw Bitcoin return to $3600 mark after a week pushing $4000, will next week see another rally?
Asian overnight: Asian markets are closing out the week in positive fashion, with Chinese, Japanese, and Hong Kong stock markets in the green as continued optimism surrounding US-China trade talks helps to drive hope of a wider recovery. Trump’s claim that the US is having ‘tremendous success’ in trade talks with the Chinese has raised hopes of a breakthrough within the 90-day timeframe set out by Trump and Xi Jinping. On the data front, Japanese household spending fell further into negative territory (-0.6% from -0.3%), while Australian retail sales ticked marginally higher (0.4% from 0.3%).
UK, US and Europe: Looking ahead, the European session looks set to be dominated by the UK economy, with the November GDP reading, manufacturing production, industrial production, and December NIESR GDP figure all released simultaneously. Meanwhile, for the US session we have the US CPI inflation reading to look out for as a source of market volatility.
Economic calendar - key events and forecast (times in GMT)
9.30am – UK GDP & trade balance (November): growth to be 0.3% over the three months to the end of November, while trade deficit to narrow to £2.2 billion from £3.3 billion. Market to watch: GBP crosses

1.30pm – US CPI (December): prices expected to rise 2.2% YoY, in line with last month, and 0.2% MoM, up from 0.2%, while core CPI rises 2.2% YoY and 0.2% MoM. Markets to watch: US indices, USD crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Flybe has agreed to be taken over for £2.2 million by a joint venture of Stobart Group, Virgin Atlantic and several investment funds.
Grafton Group expects earnings to be slightly ahead of expectations, as revenue rose 8.7% for 2018, to £2.95 billion.
Moss Bros expects to report an annual loss, after sales fell 1.1% like-for-like for the 23 weeks to 5 January. An annual loss of £0.6 million is expected for the full year.
Cairn Energy upgraded to outperform at BMO
Hunting upgraded to overweight at JPMorgan
Saipem upgraded to overweight at JPMorgan
Suedzucker upgraded to neutral at Goldman
Eurobank downgraded to underperform at KBW
Orion downgraded to underperform at Jefferies
Raiffeisen downgraded to neutral at JPMorgan
Telia downgraded to sell at SocGen
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

China's stock market leads 2018 losses with both major indexes, the Shanghai composite and the Shenzhen component each facing annual declines of over 24%.
2018 saw both Australia and Hong Kong's benchmark indexes face annual declines. The ASX 200 falling 6.9% compared to its 2017 closing, whilst the Hang Seng index saw around a 13% decline compared to 2017.
China's manufacturing sector contracted for the first time in two years.. The official Purchasing Manager's Index reporting at 49.4, falling short of the 49.9 prediction.
The ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Pacific (CPTPP) by seven of it's members yesterday may see further disruption to American trade in 2019. The agreement will slash tariffs among members, leaving non-CPTPP members such as the US less competitive.
US stock-index futures rallied on Sunday after Trump's Tweet reported positive US-China negotiations. S&P 500 March contracts rose 0.7%, the Dow climbed 0.8% and Nasdaq futures increased 0.9%.
Asian overnight: Bangladesh Prime Minister Sheikh Hasina secured her third consecutive term with landslide victory. Hasina's party and it's allies won 288 out of 300 parliamentary seats but opposition calls for investigation into vote-rigging allegations.
UK, US and Europe: Paris fire this weekend most recent result of Yellow vest protesters anger over inequality and the high cost of living. After resisting demands to reinstate wealth tax President Emmanuel Macron's government is scrutinizing the tax situation of business leaders and state they will take measures to force them to pay their taxes in France if necessary. Bexit deadline may be forced back until as late a july, warn both members of the Conservative and labour parties, if May fails to deliver vote in favour of her proposal.
South Africa: Polls close in vote for new Democratic Republic of Congo president. Delays caused by electronic voting machines caused further frustration after 2 year wait for the election.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Sears announcement to increase store closures from 40 to 80 by late march 2019, stocks saw resulting slip of 2.24%.
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Amazon announced a rise in investments, causing shares to fall over 5 percent , however beats earnings per share expectations and revenue, reporting $6.04 per share in comparison to an estimate of $5.68 per share and a revenue of $72.4billion versus %71.9billion.
Caxin Manufacturing PMI falls below expectations to 48.3 in January in comparison to 49.7 in December, its lowest reading since 2016
Stocks in Asia mostly traded higher, with the Shanghai Composite increasing around 1.3 percent, Shenzhen component and Shenzhen Composite also rising by around 1.7 percent, the opposite to the Hang Seng Index which fell by around 0.18 percent along with the ASX 200 down 0.03 percent
Stocks on the S&P 500 jumps 0.9%, totalling a rise of 7.87 percent this month, closing out their best January in three decades. Nasdaq Composite also rises 1.37 percent but the Dow Jones Industrial Average closes just below the flatline.
Xi Jinping, China’s leader, reached out to Trump in a letter in hopes of accomplishing a trade agreement before the March deadline.
Deutsche Bank fails to meet profit expectations as its 2018 full-year profit totalled 341million Euros ($390million), compared to analysts estimates of 461million euros
Singapore and China to build a city in China to become a home for 500,000 people by ‘converting farmlands into a sustainable urban development’
The amount of Gold purchased by central banks, in volume, reaches its highest level since 1967. It is estimated of around 651.5 metric tons were brought in 2018, 74 percent higher than 2017
Herman Cain, former presidential candidate under consideration for the FED. Cain previously served at the bank for around 7 years, before moving into the political world, running for president in 2011
Senator Bernie Sanders suggests to increase the estate tax levels of those who earn more than $3.5million, affecting an estimate of 0.2 percent of the country. The current tax levels affect those who inherit more than $11million
GE shares increase to its highest in 9 years by 18%, after posting better than expected revenue of $33.3billion in its fourth quarter
Asian overnight: A mixed affair overnight has seen gains in Chinese markets overshadow the more subdued downside seen throughout the likes of Japan, Hong Kong, and Australia. Much of the gains in China can be attributed to bullish comments from Donald Trump, who tweeted that China stands ready to import huge amounts of US soybeans. The problem is that China already imported a massive amount of soybeans to begin with, but at least it is a step in the right direction. Unfortunately we also saw some bad news for the Chinese, with the Caixin manufacturing PMI declining further into contraction territory with a reading of 48.3, from 49.7.
UK, US and Europe: Looking ahead, the manufacturing theme looks set to continue, with eurozone (revised) and UK PMI (initial) readings for the sector released during the morning. Also keep an eye out for the eurozone CPI inflation reading, which is expected to decline into a nine-month low. Finally, the US looks set to spark significant volatility, with the release of the jobs report in the afternoon. Last month saw a huge payrolls number, and thus this month expects to see a more subdued figure. Also look out for the manufacturing PMI surveys from the US. On the corporate front, Chevron and Exxon Mobil round off a busy week for earnings.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9.30am – UK mfg PMI (January): previous reading 54.2. Market to watch: GBP crosses 10am – eurozone inflation (January, flash): prices rose 1.6% in December. Market to watch: EUR crosses 1.30pm – US non-farm payrolls (January): 183K jobs expected to have been created, from 312K, while average hourly earnings rise 0.3% MoM. Markets to watch: US indices, USD crosses 3pm – US ISM mfg PMI (January): indices to fall to 54 from 54.1. Markets to watch: US indices, USD crosses
Corporate News, Upgrades and Downgrades
TalkTalk said that annual earnings would fall short of forecasts, due to investment spending and accounting changes. Guidance was £245-250 million, below the consensus of £259 million.
RPC reported flat earnings, with operating profit for Q3 similar to a year earlier, although revenues rose 1.4% to £894 million. The firm said it would engage with Berry Global, which unveiled a competing bid for the firm yesterday.
Puma attempts to compete with Nike, releasing a self-lacing shoe in 2020, where individuals can tighten or loosen the laces using an app
Daimler upgraded to overweight at Morgan Stanley
H&M upgraded to reduce at Handelsbanken
Rio Tinto upgraded to add at AlphaValue
Rentokil upgraded to buy at Citi
Adidas downgraded to neutral at UBS
Close Brothers downgraded to sell at Citi
Intertek downgraded to hold at Jefferies
Mediaset downgraded to underweight at Barclays
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Written by Kyle Rodda - IG Australia
What’s making headlines: There’s an hour and a half to go in the US session and global equities are up. Let’s assume they finish that way – there is plenty of room for clarification (and rationalization) late-on, if need be. Traders have taken the new green shoots in the trade-war and spun them into a positive narrative. Sure, the old green shots lay trampled below the new ones, but perhaps this time around the positivity will be given a chance to thrive. The other story hogging headlines in the financial press is the vote motion UK Prime Minister May’s leadership of the Tories. Market confidence has been shaken by that development, but as we wake-up this morning, the balance of opinion seems to be suggesting that May will win the day.
The data side-show: Politics is driving markets still, which is always dangerous – it’s often a distortionary influence on prices rather than a revealer of fundamental facts. However, the fundamental economic data that was handed to traders overnight supported their optimism. Arguably the most significant release for the week, US CPI figures delivered a bang-on forecast number. If you’re a bull, locked in an environment where there exists fear of a global economic slowdown on one side, and fears about higher global interest rates on the other, a moderate outcome to any data-release is welcomed. Fundamental data last night was light otherwise, with US crude oil inventories the next most important release. It overshot forecasts, but still showed shrinking supplies, which boosted oil prices and (at the very least) didn’t detract from the bullish sentiment.
ECB on tap: The next release on the data docket is the ECB meeting tonight. It’s that central banks last meeting for the year and ought to be watched, considering all this talk about slower growth and hawkish central bankers. Given the noise in markets and the gradual stagnation in the European economy, it’d be a might surprise if ECB President Mario Draghi and his team deliver any surprises. The situation across Europe is fraught with political, social and economic danger. No central banker is going to want to light a flame under all of that. Going into 2019, France is burning, Italy is agitating for change, the UK is still trying to bail, and the custodian of it all, Germany, is about to lose its steady hand in leader Angela Merkel. The politico-economic landscape doesn’t inspire much confidence in the grand European project, and the ECB will probably reflect that.
Another faded rally? Nevertheless, as mentioned, traders are taking in their stride the ever-present risks in this market. (Stream of consciousness status update: US equities are giving up their gains with about an hour-and-a-half in trade to go, however they remain ahead for the day. Again, let’s check in on that later.) The core question at hand on bullish days is to what extent are rallies a reflection of market-reality or mere perception. US stocks have ended as of today its latest downtrend – another in a line of aggressive sell-offs and rallies within what is overall a sideways pattern since the middle of October. There must be scope for a break-out from this pattern at some point soon. The S&P500 eyes the 2800 again now: maybe we assess the strength of the bulls by their ability to return US stocks to that level again.
ASX200: SPI futures are tracking Wall Street’s performance this morning, as they are wont to do, suggesting an open 5 to 10 points higher for the ASX200, at time of writing. The performance of Australian equities yesterday was solid, in line with major regional counterparts, as fears of trade-wars abated once again. Volume was ample at 15 per cent above average and breadth came-in just below 80 per cent. Each a sign of strong bullish conviction. It seems a desire to get into cyclical, economic-growth stocks constituted the essence of yesterday’s sentiment. The greatest activity was to be found in the materials, industrials and consumer discretionary stocks. Irrefutably, this is a good sign for the many who hold optimistic-enough views on global growth; the test will be whether this view can be vindicated leading into the end of the year.
The seasonal kick? The success and failure of the ASX200 will be strongly correlated to what happens to US stocks for the rest of 2018. It figures: the core issues in the market relates to the ongoing strength of the US economy, and how hawkish the Fed may-or-may not be. There is probably an inherent disconnect on some scale of looking at our market through that lens. The ASX200 never truly saw the parabolic rise in prices that the major Wall Street indices did during the easy money era (Australians engineered a residential property boom instead). All the same, if seasonality is a guide, a December run higher is on the cards come the last half-of December. The measure of any run’s sustainability should roughly be assessed by the index’s ability to challenge levels at 5705, 5790 and 5880.
Price-check: The North American session is nearly at its close. Time for a review on the price action. Wall Street is off its intraday high but has still managed gains over 1 per cent. The benchmark S&P500 is 1.2 percent higher. This backs-up a day in which the DAX and FTSE rallied 1.4 per cent and 1.1 per cent respectively. US 10 Year Treasury Yields are up to 2.90 per cent, and the yield on US 2 Year Note is up 2.77 per cent, widening the spread there to 13 points. Credit spreads have also narrowed. Higher risk appetite has seen the greenback sell-off. The DXY is at 97-flat, thanks in part to a Euro that’s fetching 1.1375 and a pound that’s buying above 1.26. Gold is slightly higher $US1245. The growth-optimism has boosted our AUD to just above 0.7225, while oil is up, and copper and iron ore are down.

Cryptocurrencies have been going through a period of relative stability, which is almost unheard of for the asset class that gained notoriety for its volatile price movements.
The stock market selloff that punished the tech sector in the first half of October coincided with Bitcoin losing 7.5% of its value in a single day. Does this correlation in market movements suggest that as Bitcoin and other cryptos have become more mainstream, and adoption by centralised financial institutions has risen, the price is now at the mercy of the same institutions and financial markets it was seeking to circumvent? Or could the selloff be more indicative of general investor sentiment at that time when confidence in the markets was low?
One interpretation of the current market movement suggests that the correlation between the crypto class to the major indices are largely unrelated. This interpretation may be supported by the fact that as the more traditional markets have continued to fall through October (with tech having its worst month in a decade) bitcoin’s price action has remained stable, whilst simultaneously seeing a 17-month low volatility rate, even with yesterday’s 2% fall.
Technical analysis of the price of Bitcoin shows that the coin was hitting its resistance line and the markets were already likely to turn bearish. The below chart illustrates a falling wedge formation with an almost horizontal support of $6000 that has developed since the February market sell off which shows bitcoins price consolidate and volatility reduce. The wedge shows that the support and resistance lines are expected to congregate by early November but it’s important to remember that a breakout can occur at any time as the price boundaries tighten as investors may take any breach of these lines as an indication of the future price of Bitcoin over the medium to long term. The fake-out of Monday the 10th suggests that investors are poised for any news that can drive price action.
Coinciding with this November timeline is a deadline set by the SEC to allow the public to submit opinions on whether to allow Bitcoin ETF’s in the United States. The deadline, which has been moved from October 26th to November 5th follows the SEC’s original decision to reject the ETF’s citing a lack of compliance to prevent market manipulation.
This decision by the securities authority could fundamentally define how investors perceive the currency as a further integration into financial markets is either halted again or finally given the green light. The ability for this type of announcement to move prices should not be underestimated as bitcoin hit its all-time high just six days after the first Bitcoin futures contract was announced by the CBOE. Granted this happened during an upwards trending bull market, but it undeniably added to that movement.
The announcement to review the initial decision just one day after rejecting the first application, as well as a published statement of official dissent by commissioner Pierce of the SEC, could indicate a potential swing in judgement from the SEC. However, this may not represent a full shift of opinion by the commission as it only takes one commissioner to open a review. Following the deadline, an official decision will not come from the SEC until they have had a chance to review the public submissions, but investors will be listening intently for any early indication of how the decision might go.
More recently, reports that some of the concerns that the SEC have over introducing the ETF have been mitigated by the organisations producing the ETF’s have saw speculators expectations heighten for a prospect that at one point seemed rather unlikely. The concerns of the SEC include market liquidity, volatility, pricing and market manipulation. However, proponents have argued that the SEC’s demand for a ‘significant’ futures market allowed them to be non-committal as they have not defined what they classify as significant.
The imminence of impending large technical and fundamental focal points implies we may be on the brink of a spike in volatility but what price can investors reasonably expect the currency to move to if the market were to shift? The previous decision by the SEC preceded a $400 dip in the price of the coin in one day and fell back down almost $2000 in the following two weeks to the previously mentioned support level of $6000. Speculators may be hoping a reversal in the decision could see Bitcoin return to $8000 or higher. It’s hard to predict how low the price could go as these prices haven’t been seen since before the all-time high but proponents of the technology wishing for continued stability will be hoping that the lack of a bitcoin ETF is already priced into the market.

Written by Kyle Rodda - IG Australia
Week starts soft: Global equities are down to start the new week. The stories driving the overnight moves are slightly different, but the themes remain the same: the dual risks of higher global interest rates and the prospect of slower global growth has put the bears (at least momentarily) back in control. It can feel repetitive to keep having to reel-off this story. Slower growth, higher rates, slower growth, higher rates – the message keeps echoing throughout markets, giving market participants a sensation of vertigo. Although it must feel trite, the inescapability of the slower growth and higher rates mantra speaks of the gravity of each concern. The fact is, markets are a smidgeon away from being half-way through November, and for most major-global stock indices, the recent ructions in equity marks means that the year has delivered nothing in return.
Fears of peak growth: Now of course, to reduce the return on equities to the gains and losses delivered from January 1 to now is far too simplistic. For the many who have been in the market longer than that, or for those who have timed their run well, the year has provided ample opportunities to attain a fruitful profit. The point is however that whatever the market has been able to bequeath to the individual trader or investor, overall, equities are looking increasingly like they have hit their peak for this cycle. This is far from assured naturally and speaks only of a developing consensus – mere perception, quite possibly -- amongst market participants. However, considering how long investors had to wait for these condition, the many distractions that have enervated market activity in the second half of this year has led many to the belief that an opportunity has been squandered.
Wall Street: It’s this frustration that underpinned market sentiment overnight. Big tech was once again the biggest loser on global stock markets, with the NASDAQ down by over 2 per cent, and the broader S&P500 down 1.13 per cent, at time of writing. The sell-off in the tech giants has pushed the P/E ratio across the NASDAQ, below 40/1 once again. Volumes have picked up throughout the day in US trade, but they have been hindered by the absence of bond-traders in the market due to the US Veteran’s Day holiday. That has deprived traders of the ability to assess the information contained within US Treasury yields – likely adding to the negative tone of US trade. Despite activity in rates and bond markets being subdued (if not totally missing), the US Dollar has flexed its muscles, touching a near-18 month high and looking primed to burst higher from here.
Currencies: Much of the strength of the US Dollar, it must be said, is emanating from a much weaker Euro and Pound. Geopolitics and its economic ramifications (typically) dictated trade in European markets yesterday, pushing the DAX down 1.77 per cent, and dragging the FTSE (which did find some very limited support from a weaker currency and a bounce in oil prices) 0.74 per cent lower. The state -of -affairs of the European economy still appears ugly: there was a flaring of anxieties regarding the Italian fiscal crisis yesterday, which lead to a widening of bond spreads across the region; while the hope that a Brexit deal will be delivered by the end of the month is waning. It was these two narratives that drove EUR/USD below support at 1.1310, to presently trade just below 1.1250; and dragged the GBP/USD deep into the 1.28 handle, once more.
Asia: The stronger US Dollar coupled with the “weaker global growth” narrative has seen the Aussie Dollar shed about half-a-per-cent, likely in sympathy with the offshore-yuan, which has plunged back into the 6.96-handle. This comes despite a solid day’s trade throughout the Asian region: although far from the strongest day we’ve seen from Asia’s equity indices lately, the CSI300 managed to add 1.19 per cent for the day, the ASX200 managed to close 0.33 per cent higher and above key-resistance at 5930, and the Nikkei and Hang Seng finished the day up 0.1 per cent on very thin volumes. Sentiment was probably given a boost by the massive “Single’s Day” in China – that generated approximately $US31b worth of sales in the space of 24 hours yesterday – however, the benefit was short-lived, with European and US traders from the far greater fundamental challenges facing the Asian region.
ASX200: SPI futures are indicating a 57-point plunge for the ASX200 this morning, weighed-down by the weak lead from Wall Street, combined with the jump in implied volatility courtesy of the concerns surrounding global growth. The materials and health care sectors led the market higher yesterday, offsetting the fall in the financial sector caused by ANZ trading ex-dividend, in a day that saw breadth at a solid 60 per cent. Softer commodity prices and potential bearishness in Chinese equities present as the challenges for Australian shares in the day ahead. Copper prices have been dumped 1.6 per cent overnight, gold has fallen victim to the stronger greenback to challenge support at $US1200 per ounce, and oil has dipped by 1.4 per cent in Brent Crude terms – boding all in all poorly for the materials and energy sector in the day ahead.
Oil update: Another oil update is certainly required this morning, after the sensitive politics of the black-stuff became inflamed overnight. It didn’t take long for it to happen: with all this talk coming out of OPEC of supply and production cuts in 2019 over the weekend – the result of which was enough to break oil’s 10 day losing streak yesterday – US President Trump waded into the issue via Twitter last night, tweeting “ Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” The comments from the US President – made only a matter of hours ago – has dumped the price of Brent Crude to a new 7-month low, and the price of WTI to a 10-month low, as traders seemingly increase bets that the US may boost oil production to offset reduced supply from OPEC+ if they were to occur.

Weaker sentiment: Risk aversion continues to plague global markets. Despite some positive developments on Friday regarding the US-China Trade War and US Federal Reserve policy, confidence appears to be lowly, resulting in a general flight to safety. It was telling that the NASDAQ couldn't close higher along with the Dow Jones and S&P500 on Friday: the desire to jump into growth stocks keeps diminishing in this market. It raises the risk that market participants have internalised the idea that now is not the time to be chasing capital gains in high-multiple shares. The momentum chasers are being unquestionably washed out of the market, with punters changing strategy from one of "buy the dips" to "sell the rally".
Missing conviction: It can be at these points in which moves to the downside are exaggerated because of an overall bearish bias. Assessing volumes are a terrific indicator of this, and currently and on balance, the days when Wall Street closes higher has generally coincided with days when volumes are relatively thin. The dynamic implies a lack of conviction from the buyers and sets up opportunities for aggressive sellers to profit from rallies in the market. The ASX200 demonstrated this well on Friday, where after a rather volatile week that ended with the index closing 0.10 per cent lower, intraday rallies in Aussie shares were flimsy and quite fleeting, revealing a tangible unwillingness by traders to take long positions in this market.
Less information, more volatility? It will be curious to see how this theme holds in the week ahead. There is such a dearth of fundamental data: the economic calendar is light and US earnings season is effectively done-and-dusted. Traders will have no choice but to focus on the handful of significant geopolitical stories playing out, all in the backdrop of continued speculation about the very core concerns regarding US interest rates. It's a recipe with all the ingredients for a volatile week, if market participants struggle to price in the many vacillating variables moving markets. Watching how the VIX behaves will be the starting point for many-a trader, to get a gauge on to what degree fear and uncertainty exists.
Geopolitics: It's conceivable that a new development in Brexit and/or the Trade War could shift sentiment very rapidly. There is a sense a breakthrough -- whether positive or negative for markets -- is upon us in both of those issues. Theresa May's Prime Ministership and her Brexit deal will face an existential threat this week, the possible outcome being a successful no-confidence motion in the Prime Minister, and subsequently the death of her Brexit deal. Trade War negotiations have ostensibly improved, however there are many mixed messages coming from both the US and Chinese governments regarding what this month's planned meeting between Chinese President Xi Jinping and US President Donald Trump at the sidelines of the G20 will yield.
Slight to safety: An absence of certainty and clarity on both subjects has traders seeking safety. US Treasuries have rallied, with the yield on the 10 Year note falling to support at 3.07 per cent, a break of which could open downside to 2.95 per cent. The Japanese Yen has also been bid-up, closing last week's trade at 112.83, while the EUR bounced back above 1.14 -- and the GBP recovered some of its losses -- causing the US Dollar Index to pull back. Gold prices have spiked consequently, trading at $1222 per ounce. Other commodities have been supported by a lift in optimism regarding the trade war, with Copper and aluminium closing last week high, however oil prices still appear vulnerable to the downside, as concerns of a global over supply persist.
The Aussie pops: Bringing it back closer to home: the Australian Dollar has been a major beneficiary from the weaker greenback on Friday. The Aussie Dollar has broken resistance at 0.7310, to open upside now toward the 0.7450 mark. The trend of US Dollar strength ought not be considered over yet: the yield advantage of holding US Dollars remain and looks likely to persist as the Fed maintains its rate hiking cycle. The tremendous amount of short positioning in the Australian Dollar (still), however, means that a continued pop higher in the A-Dollar is possible, before the more structural factors relating to interest rates differentials reassert themselves. In the week ahead, any sign of a step forward in trade negotiations could fuel an Aussie Dollar rally, with the inverse naturally true if trade negotiations sour.
ASX today: Finally, the price on SPI futures is indicating a 17-point jump at the open for the ASX200. As alluded to earlier, a read on volume could be valuable today, especially if the market experiences upside. Of course, being a Monday, it will likely read lower irrespective, so perhaps the question should be to what extent volume deviates from the norm. The short-term trend is lower for the Australian share market and should probably considered so until a significant run back and beyond 5930 is achieved. A reason to buy into the market will be required to achieve this - something today is unlikely to deliver.
Looking at the key sectors that drive the ASX200 and the narratives shaping their activity, briefly: the financials could find themselves supported today by a small army of bargain hunters, but another poor showing from Aussie property on the weekend plus more from the Royal Commission this week could drag on the banks; a sluggish day for the NASDAQ on Friday could indicate weakness in the high-multiple healthcare stocks; while the modest lift in commodity prices to end last week, along with the very slightly brighter outlook in the trade war, may benefit the miners.

Wall Street’s follow-through: Markets have basked in the afterglow of Wall Street's bull-friendly Friday session. They've gotten what they've been screaming for: some strong data and a more-dovish US Federal Reserve. For the first time in a month, perhaps more, trade has been characterised by a relative sense of calm. The VIX is drifting lower and toward the 20-mark. Stocks are up on Wall Street after a solid day in Asia, and global bonds are down. This could all change in an instant, that much is known. There are too many moving parts in this market to truly believe stability will be an ongoing theme. For now, a recess from the mad volatility that capped the end of 2018 is being welcomed by investors - and perhaps lamented by your risk-loving active-trader.
Markets placated… for now: It's the behaviour one might consider akin to that of an obstinate child. Markets, particularly in the equities space, threw as many toys out of the pram as they could find in the past 3 months, in protest of the Fed's tough talk. US Fed Chair Jerome Powell's back down and soothing words finally placated markets, giving the financial equivalent of a candy-bar in exchange for markets' good behaviour. Last night, Fed Speaker Bostic backed his chief up and reaffirmed the dovish-tone: he sees little more than one hike this year, even amid a solid growth outlook. Taking aside whether it’s the right kind of positive reinforcement, the question becomes whether the underlying problem has been fixed or is just a distraction from the facts.
Improved sentiment: Perceptions relating to the growth outlook have changed again, and that much is a positive for the bulls. The general description regarding the data coming out of the US is that it's mixed, amid deteriorating activity in Asian and Europe. That in and of itself is justification for hope: there have been some economic low-lights lately, but they aren’t enough to establish a trend. It's a precarious balance and will likely result in further volatility down-the-line as traders become accustomed to a patchwork economy. A dynamic such as this might be palatable for the Bulls in the short-to-medium, on the proviso that the Fed is standing at the ready to jump in to save markets once true signs of economic stress manifest. However, orthodoxy suggests that, at some point, it must.
The big contradiction: The everyday punter would be happy with this result. An absence of the daily doom and gloom about capital markets’ hardships would be good for economic sentiment. The central conceit remains that a harmony can exist between economic fundamentals and the monetary policy makers seeking to manage them. The primary contradiction confronting financial markets is this: growth needs to be strong so to ensure attractive returns, though not strong enough to inspire a hawkish Fed. Where the middle ground lies in this dynamic is nebulous and up for debate. 2019 could well prove the year that markets and policymakers strike a tacit accord to maintain this condition. It’s understand though that this as an assumption would that far too optimistic: the more likely outcome is confusion and uncertainty.
An ongoing balancing act: Market participants are often on the look-out for that elusive "Goldilocks-zone" where markets operate calmly in the middle of its inherent extremes. Arguably, the global financial system as it operates now exists to fulfil that objective: to iron out the extremes of unbridled capitalism. And sometimes it succeeds, even if the successful policy amounts to simply kicking-the-can down the road. The challenge (and opportunity) facing markets now is that today's "Goldilocks-zone" is narrower than what it's been in the recent past. The parameters are obscure and moving, meaning achieving market stability takes on the qualities of walking a tight rope. A push from weak economic data will send markets off the rope one way; a push from higher US interest rates will send markets off the rope the other.
“Risk-on”: Until the next market spill, risk will be “on”. The S&P500, with half an hour left in trade, is tracking roughly 0.9 per cent higher, on solid breadth of about 84 per cent. Indicative of higher risk appetite, consumer discretionary and IT stocks have led the charge. European stocks were lower for the day, as Brexit speculation returned to newswires. US Treasury yields are up very slightly across the curve, which has flattened its inversion somewhat. Credit spreads have narrowed, especially that of “junk bonds. Oil has climbed very slightly on positive-growth sentiment. The US Dollar is down with the JPY and gold is effectively flat, as currency markets take a punt on riskier currencies like our A-Dollar, which is trading around 0.7140.
ASX200: SPI Futures are indicating a flat start for the ASX200 as it stands, following on from a respectable 1.14 per cent rally yesterday. Activity was still light in the Australian share market, and the psychological resistance level of 5700 was faded when it was reached. But overall, the market belonged from start to finish for the bulls. The materials sector reflected the easing concerns regarding global growth to add 22 points to the index; higher bond yields meant the financials sector was the second greatest contributor. The day ahead has Aussie Trade Balance figures on the calendar, which will inform local investors about whether the economy’s trade surplus held together to end 2018. Not much of a response to that data is expected, however.
Written by Kyle Rodda - IG Australia

Wall Street rout: Wall Street capped-off last week with another day of considerable losses, even despite Europe posting an okay day. Come the end of the trading session, the Dow Jones had lost 1.81 per cent, the S&P500 had lost 2.06 per cent and the NASDAQ had lost 2.99 per cent. The fact markets are entering the thin holiday period doesn’t help. One assumes that many-a investor would be rather reluctant to be sitting at Christmas lunch this year holding open-positions in equities given this market. Friday’s volume was extraordinarily high, especially in the Dow Jones, which saw activity 140% of its 30-day average. That statistic is particularly remarkable when considering that the past 30 days have seen volumes at levels very elevated by broader historical standards.
A down day, week, month, quarter: Looking at the S&P500 as the natural benchmark, US equities have shed 12.5 per cent so far in December, and 17.1 per cent in the fourth quarter. The 14-day RSI is flashing signs of an oversold market presently, however historical trading patterns suggest the S&P can dive lower, and momentum indicators are showing bearish-momentum is still building. A technical bear market, defined as a 20 per cent drop from previous highs, looks reasonably imminent given the current context. The NASDAQ, for one, is already there. Perhaps another concerning signal, IG’s sentiment measure is indicating traders are 70 per cent net long the S&P, implying that many traders may be trying “catch a falling knife”. If big-money keeps selling, the unwinding of these long positions could hasten the market’s tumble.
Market-wariness: With all of this in mind, even if this bearish-trend feels overdone, and that therefore an inevitable bounce must be in store, it pays to understand this can get worse. That isn’t to prophesize and suggest that it will, but more that these circumstances require higher vigilance. As the cliché goes, the trend is your friend: with panic causing normal behaviour and correlations to break-down, falling back on that one may be comforting. Of course, these ideas only speak for 50 per cent of the traders in this marker presently. The uber-bears – particularly the ones who have been calling a central bank engineered market burn-out for years – are presumably feeling vindicated at-the-moment. If not that, then at least a little richer this Christmas than compared to last year’s.
It’s still the Fed: To address the driver of current market activity: it is still fundamentally about the Fed. There seems to be an unshakeable notion held by market participants that the US central bank is way off the mark with their policy and views on the economy. A handful of central bank speakers have hit the hustings, so to speak, in the last several days to defend the bank’s position. An interesting question that keeps getting asked (more-or-less) is if by the bank’s own modelling inflation is going to undershoot, why lift rates now at all? The answer is frequently something that resembles the “data dependant” line, made to mean that the Fed’s forecasts are dynamic and therefore so is their decision making.
Trump’s Powell-problem: The problem is, traders aren’t buying it: they likely want to hear here-and-now that hikes will stop. It’s been made a little more difficult in the last 48 hours to get a read on how this sentiment is evolving in markets. Looking at US Treasuries for one, there’s been a slight risk premium seemingly priced into yields after US President Trump drove the US government into shut down over the weekend. This may be exacerbated today and into the week by reports over the weekend (since denied by White House Treasury Secretary Steven Mnuchin) that the US President had several serious conversations last week about firing Federal Reserve Chairperson Jerome Powell because of the central bank’s recent policy actions, and views on the US economy.
Political instability: He couldn’t do it, could he? According to many, legislation does open-up the possibility that a President can fire the Fed Governor for “cause”. It’s an ambiguous one, and a low probability event at this stage. But all this institutional dysfunction is spooking market participants. Not that the political instability hasn’t been the norm in last few years; the perception is though it’s getting a trifle worse. It’s an international phenomenon and strikes at the core of international political system. It’s manifesting in Brexit, in US politics, in France’s yellow vests movement, in the trade-war – and on and on. Financial markets take an amoral position on such subjects; however, they do manifest emotion, and right now the political climate is leading to a lift in fear.
Australia: Trading in sympathy with Wall Street’s rout on Friday, the last traded SPI Futures price has the ASX200 opening 40 points lower today. There’s been a level of bemusement in the financial press about how rapidly this sell off took hold. Another down day today brings into clearer view the boundary line of the ASX200’s post-GFC bull-run trend channel at about 5380. The Aussie Dollar will also be an interesting one: it tumbled to rest on support at 0.7040 over the weekend. As fears build about the strength of the Australian economy, and greater volatility in global markets leads to diminishing risk appetite, an AUD/USD exchange rate with a 6 in front of it at some point this week is becoming a stronger possibility.

Wall Street pulls back: On balance, and with Wall Street a few hours from ending its session, it's been a soft 24 hours for equities. The often heard calls of a looming "new-peak" in the market in the shorter term can be heard from some. Momentum has certainly slowed down. The S&P500 has its eyes one 2815 again - that crucial area where that index sold off on three occasions from October to December last year. It could be a slow drive to arrive at a challenge of that level now. The dovish Fed will keep the wind behind US stocks; but the earnings outlook, post reporting season, has dimmed on Wall Street, while positive regarding the trade war has already been heavily juiced.
Trade war truce already priced in? Markets are positioned for a relatively positive outcome in the trade-war, and that's manifesting in pockets of market activity. A true resolution in the trade war isn't expected, however an extension to be March 1 trade-truce-deadline seems to be. The overnight fall in US Treasuries, coupled with a topside break of copper's recent range, is a testament to this sentiment. The yield on the US 10 Year note has jumped back towards 2.70 percent, while the 3 month copper contract on the LME leapt another 0.83 per cent overnight. In G4 currencies, the US Dollar is stronger against the Euro and Pound, albeit very, very marginally, but weaker against the Yen.
The curious case of gold: Gold prices have dipped slightly courtesy of the stronger Dollar and greater confidence in the policy-outlook for the world's major central banks. The price of the yellow metal is sitting just above $1325 presently, as it continues its short term trend higher. One of the more divisive debates amongst traders currently is the outlook for gold. Like any market, time horizons are crucial to illustrating the trend for an asset's price. For gold, the short term trend is certainly higher, but with signs of "toppy-ness". The medium term trend, though perhaps posting some higher-lows in the price, is sideways at best. The long-term, secular trend though for gold prices is irrefutably pointing higher.
The gold debate: There is several aspects of this price dynamic, and elegantly indicates the different types of traders that move a price over certain time horizon. The immediate-term outlook for gold is naturally speculative, and pertains to the swings-and-arrows relating to stories about the trade-war, global growth, and short term rates. The medium term activity in gold certainly tracks the changing yield environment and vacillations in the credit and monetary policy cycle - primarily of the Fed. In the longer-term, where time scales of decades are spoken of, gold prices are angling higher, seemingly as global central banks buy the metal to hedge their US Dollar dependence.
Global growth outlook dims further: At the risk of flying off into paradigm after paradigm: a health check on economic data from the past 24 hours is in order. A mixed bag of data pertaining to global economic growth shaped the "global growth narrative" last night. It was a big PMI day in Europe and Asia, and while there weren't as many shockers, the numbers showed a greyer outlook for the global economy. Japanese Manufacturing PMI deeply contracted once more, Australian PMI figures dipped, while European numbers were relatively better, however did little to ameliorate the concern that European growth is sliding. It was a notion backed-up by last night's ECB minutes: policy makers can see what's happening to growth, and now future monetary policy is on notice.
Australia's wise-old uncle calls RBA cuts: Centring on the Australian experience, and a headline grabber yesterday was the Australian Dollar's wild ride. Labour market figures popped a rocket under the Aussie in early trade, after it was revealed that the local economy added 39k jobs last month - enough to keep the unemployment rate at 5 per cent despite, despite a climb in the participation rate. It all came undone for the currency quite quickly, however, after Australia's wise-old-uncle on RBA policy, Bill Evans, announced his view that a forecast fall in domestic GDP to 2.2 per cent and a subsequent rise in the unemployment rate to 5.5 per cent would prompt to RBA to cut rates to 1.0 per cent this year.
ASX to open soft: To add insult to injury, the AUD/USD was slapped down below 0.7100, after China announced a ban on Australian coal imports. This story aside, which dropped after the ASX200's close, the fall in the currency, and the fall in Australian Commonwealth Government bond yields, proved a positive for the ASX200. It closed 0.7 per cent higher for the session at 6139, and now eyes the next resistance level around 6160. The developments regarding the ban on Australian coal going into China, concerns about Australian fundamentals, and a bit of selling into the close on Wall Street should drag on stocks today. SPI futures indicating a 4 point drop for the ASX200 this morning.
Written by Kyle Rodda - IG Australia

Written by Kyle Rodda - IG Australia
A big bounce, but a bottom? There’s little shortage of folks calling a bottom in the market this morning, but in truth it’s too early to tell if we are there yet. Sentiment indicators and other market internals suggest that the market could be oversold right now, however a short squeeze here-and-there and a shake-out of a few opportunistic bears doesn’t necessarily mark a change of trend. It’ll be returned to towards the end of this note, but in the interest of providing context, Wall Street is registering a solid day of activity, with its three major indices up over 2-and-a-half per sent so far in the session. It’s setting up a solid day’s trading for the Asian region, and likely Europe when it re-opens tonight, on what poses as a thin albeit positive day for stocks.
Wall Street momentum to lift ASX: After a two-day hiatus, Australian equity markets reopen this morning. The last price on SPI Futures is indicating a 35-point pop for the ASX200 at today’s open, though that price, it must be remarked, comes from its closing price on December 24th. A lot has transpired in the 48 hours-or-so during the Christmas public holiday period: immense sell-offs in certain markets, more political chaos and uncertainty in the US, and now an ample bounce in US stocks. Considering the time of year, the Australian share market is more than likely to experience another session of thin trade today. Monday’s session, for example, saw volume 63.40 per cent below the 30-day average. In saying this, though unsubstantial, Wall Street’s momentum looks likely to carry our market higher.
The stories moving markets: The financial press has been comparatively quiet owing to the holiday period, meaning major headlines from the media-machine are lacking so-far this morning. A recap is in order, perhaps, to touch-on some of the market moving stories this week. Much of the focus has centred on the machinations of US President Donald Trump and his administration, predictably. Given the US Government shut-down, the US President, by his own admission, has spent much of his time “all alone” in the White House – apparently pondering who to fire next. Of course, his ire hasn’t left the US Federal Reserve and its Chair Jerome Powell. But in the last few days or so, rumours are circulating faster that the latest career-fatality on the White House merry-go-round will be US Treasury Secretary Steven Mnuchin.
Mnuchin’s mistake: One can somewhat understand the frustration of US President Trump toward Mnuchin: financial markets seemingly experienced a dose of it Monday, after the Treasury Secretary called a crack-squad of America’s largest bankers to confirm that the market was supported with ample liquidity. Trader’s hated the notion, labelling it akin to calling-out in a crowded cinema “Nobody panic, the fire department is on its way!”. It was this move by Mnuchin that hobbled already weak sentiment on Monday and resulted in the worst Christmas eve performance in US stocks in history. Fortunately for Mnuchin (and his job-prospects), traders have moved passed the gaffe; however, the disorder in Washington, and even more so the White House, remains an ongoing concern.
Risk appetite piqued: With a little over an hour to go in Wall Street’s trading session, the solid gains for the day look likely to hold. Appetite for growth stocks has led the charge: the NASDAQ is up over 4 per cent presently, courtesy of a surge in Amazon’s share price on the back of reports of strong holiday consumption within the US economy. Oil prices have also rallied in response to a commitment from OPEC over the holiday break that it remains committed to managing production and supply. The dynamic has narrowed credit spreads marginally and provided further support for equities, while risk-on sentiment has culminated in a climb in US Treasury yields and the US Dollar, with the yield on the US Year note jumping to about 2.80 per cent

US growth expectations unchanged: The curious matter behind today’s moves though, is that under the surface traders are still pricing in softer US growth. Although equities are up, along with the US Dollar and bond yields, interest rate markets are still moving in the direction of pricing out hikes from the US Fed in 2019. It must be said that US break-evens have bounced with equities today, implying on the 5-year spread a rate of inflation around 1.55 per cent. However, in absolute and historical terms, that is still very low – a fact reflecting as much in implied probabilities of US rate hikes. There is presently only 9-basis points of interest rate hikes being factored in by traders for next year, suggesting slower than forecast fundamental growth is still baked in to market expectations.
The jury is out: It begs the question whether last night’s activity is just a technical bounce, driven by short term factors. Picking tops-and-bottoms in markets is nigh-on impossible, so any argument for or against whether we are seeing a dead-cat bounce, or a meaningful turnaround, should be read in that context. The matter is, the bearish-narratives that have led the market lower haven’t dissipated yet. As such, volatility is still high – above 30 on the VIX – and considerable rallies, like last night’s, is the norm in bear markets. The trend is the best guide, and the shorter-term trend remains lower for now. It’ll take a while to get there, but a retest of 2600 for the S&P500 may validate the view a reversal is in play; further falls to below 2290/2300 would provide firmer confirmation that the post-GFC bull run is over.

Coffee giant Starbucks announced that same-stores sales grew by 4% in its home US market, with overall revenue also beating expectations. Speaking about the results, CEO Kevin Johnson said that "Our streamline efforts over the past six quarters are paying off by allowing us to bring more focus and discipline to our three strategic priorities".
Talks are continuing in the US as the Senate tries to reach an agreement to end the government shutdown, which is now in its 34th day. The White house is pushing for "large down payments" for Trump's wall, however the Senate has already rejected two proposals as a deal including wall money "is not a reasonable agreement between senators".
CEO of Goldman Sachs, David Solomon, has warned that investment into the UK could take a hit due to a hard Brexit as he told the BBC that Goldman has stopped hiring in the UK over the last two years. Westminster is due to vote on the withdrawal agreement from the EU again next week.
Asian equities rose due to a rally in the technology sector, despite the continued uncertainty over US-China trade talks. The Hang Seng increased by 1.3%, followed by a 1% rise in both the MSCI Asia Pacific Index and Japan's Topix.
Brent crude futures jumped 1.2% to $61.80 followed by WTI crude which rose by 1.3% to $53.82 per barrel, as the US indicates that they may impose sanctions on Venezuela's oil exports due to the continued political turmoil within the country.
Gold remained steady at $1,282.08 per ounce.
UK, US and Europe: Airbus issued a warning yesterday over Brexit, the company indicated that they may shift future wing-building out of the Britain if the UK end up in a no-deal scenario. As stated above, Goldman Sachs support the view of Airbus both of whom employ a considerable number of people in the UK, with the aerospace group employing around 14,000 people alone. Despite the doom and gloom the pound is up around 1.8% since Monday, due to investors speculating that the UK will likely avoid a hard Brexit.
US markets continue to flounder, having essentially gone nowhere all week, as trade concerns remain at the forefront of investors' minds. One bright spot was the semiconductor index, which rose 5.7%, enjoying its best day since 26 December. Markets are still unable to establish a clear direction, although the lack of any renewed sell-off similar to what we saw in December is helping to calm nerves.
The German IFO index is the one event of note today, with the week otherwise set to end on a quiet note. There seems no end in sight to the US government shutdown, with Monday's scheduled barrage of US data unlikely to take place unless a resolution is found over the weekend.
South Africa: We expect a positive start to equity markets this morning as US Index Futures trade firmer, led by the Nasdaq, while Asian markets trade firmer led by the tech sector as well. Comments that US President Donald Trump is optimistic about the current trade negotiations have helped lift sentiment in the near term. However the US secretary of Commerce is less optimistic and has commented that US and China remain far away from reaching a trade deal. The US dollar has since weakened against a broad basket of currencies. In turn we see the rand gaining ground to trade at its best levels of the week. Tencent Holdings is up 3.27% in Asia suggestive of a strong start for major holding company Naspers. BHP Group is up 1.3% higher in Australia suggestive of a positive start for local resource counters.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9am – German Ifo business climate index (January): expected to rise to 101.5, from 101. Market to watch: EUR crosses
Corporate News, Upgrades and Downgrades
Vodafone reported a 6.8% drop in revenue for the final three months of 2018, to €11 billion, but annual underlying organic adjusted earnings growth is still expected to be around 3%.
AG Barr said that it expected full-year revenue to be up 5% over the year, thanks to strong performance across all brands.
Indivior said that a US court had granted a temporary restraining order to prevent rival Alvogen from launching copycat drugs for its opioid addiction treatments.
Deutsche Boerse Upgraded to Hold at Bankhaus Lampe
Iberdrola Upgraded to Buy at HSBC
NCC Upgraded to Buy at Citi
AstraZeneca Upgraded to Buy at Shore Capita
Swiss Life Downgraded to Neutral at MainFirst
Intu Downgraded to Sell at Goldman
Adecco Downgraded to Reduce at Oddo
Fevertree Drinks Cut to Hold at Jefferie
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Volatility lower; risks remain: Financial markets face far fewer risk events this week, but as has been repeatedly observed in recent months, that does not preclude the possibility of ample volatility. If anything, with so much global economic and political uncertainty at present, the absence of news can make already murky circumstances appear murkier. Traders are still jumpy and rather trigger happy, though implied volatility has been downgraded over the last week, primarily due to the passing some highly significant risk events. Last week's US mid-term elections delivered the outcome markets were expecting -- which in and of itself is perhaps the best outcome of all. While the FOMC stuck to their guns and kept market participants on notice: more than a major stock market correction is required to shift this Fed from its rate hiking path.
A familiar story: The ability to price in – at the very least into US equity markets – the result of what was last week's two most significant events has undoubtedly been welcomed by punters. Each event cast a different light on the state of markets, with neither inspiring a great deal of bullishness. It was a sense of cautious relief, it must be said, that nothing too extreme came out of them. Ultimately, the Fed's meeting – which is far and away the more fundamentally important force in markets – provided little to the Bulls to be excited about: it reinforced the internal contradiction (pun intended) present in financial markets currently: strong economic fundamentals are finally feeding into wages and price pressures, meaning the Fed must hike rates, quite possibly at the expense of the upward momentum in stock markets.
North American session: Wall Street dipped based on this on Friday. The increasingly familiar dynamic played out again: the prospect of higher interest rates gets priced into rates markets, and subsequently into US Treasury yields, weighing down equity markets, which spark a risk-off flight into US Treasuries, bidding-up that assets' price. The yield on benchmark 10 Year US Treasuries fell over 5 points on the day, as the growth laden NASDAQ fell 1.65 per cent, leading the S&P500 and Dow Jones down 0.92 per cent and 0.77 per cent respectively. The US Dollar climbed on the risk off play – as did (modestly) the Japanese Yen and Swiss Franc – driving gold prices down to $US1209 per ounce and pushing riskier assets like the Australian Dollar back-down to the 0.7226 mark.
US data this week: The week ahead presents the possibility that this variety of market activity will manifest, even if only in brief patches, once again this week. As alluded to, economic data and event risk is much lighter, however some key releases of relevance to Fed policy leap from the calendar. Most significantly, US CPI data will be published on Thursday early morning (AEDT), prefacing a speech to be delivered by US Federal Reserve Chairperson Jerome Powell hours later, along with US Retail Sales figures the day after that. Inflation risk has entered the equation in a real way for market participants for the first time in years. While the US data releases this week could print and pass-by with very little reaction, considering the nervousness in financial markets at present, an awareness and preparation for possible spikes in volatility may be prudent.
Europe: The end to Wall Street's week followed on from declines in European indices, which fell predominately for the same reasons as their US counterparts. The start of the week will be no less un-friendly than end of the last for European markets, after news, post the trading week's close, that UK Prime Minister Theresa May's latest Brexit proposal has been slapped down once again by the European Union – prompting (allegedly) that four more members of Prime Minister May's cabinet will soon resign. The developments open further downside in the EUR and GBP, which had already plunged further into the 1.13 and 1.29 handle even before this information was known.
Oil: Arguably the most significant and news worthy price action occurred in oil markets towards the end of trade last week, as fears around slower global growth coupled with growing concerns of a supply glut pushed the price of WTI to $60.00 and the price of Brent Crude to $70.00. The tenth successive day of falls in the price of oil mark the longest daily losing streak for the black stuff in history, leading OPEC+ to call fall production cuts within oil producing countries. The situation could prove a political hot topic in the months to come: Western leaders (particularly US President Donald Trump) have maintained their vocal desire for lower prices, while the members of OPEC continue to struggle to organise a coherent view of what oil output ought to be given the current global economic and geopolitical back drop.
ASX200: SPI futures are at time of writing indicating the ASX200 will recede further from the key 5930 support/resistance level and dip 37 points at today's open. This comes following a thin day's trade for the Australian market on Friday, which saw the ASX200 close 0.5 per cent lower on volumes once again below the 100-day average. Trade across the Asian region didn't deliver much for the Bulls: a weaker Yen failed to translate into gains for the Nikkei, dropping over 1 per cent instead; and Chinese indices dropped by nearly one-and-a-half per cent, and the Yuan slid through 6.95 on occasions, due to reduced optimism about a trade deal eventuating between the US and China.
The ASX200 heavyweights appear set to face familiar headwinds today: auction clearance rates were again poor over the weekend, adding to fears about the potential effect the property market slowdown will have on the big banks; sluggish activity in Chinese equities and industrial commodities markets in general have amplified fears regarding global growth and its impact on the materials sector; and a lull in risk appetite has stifled the enthusiasm for growth stocks, diminishing the attractiveness of the local health care darlings. These separate narratives aren't new to market participants, and as always could quickly flip based on the vagaries of the market; but nevertheless, it appears they are for now enough to put the ASX200 on the back foot to start the week.

Volatility is up, and risk appetite has been dulled. The VIX traded towards the 22 figure overnight, while currency safe havens such as the Yen were sought amid a somewhat remarkable sell-off across global equities during the European and North American sessions. It’s a matter of markets continuing to adjust to a world of higher interest rates and US Treasury yields – coupled with the expected panic when prices recalibrate to evolving fundamentals. A strong enough argument can be made that we are witness the beginning of the end for the US bull-market: there’s no shortage of voices out there suggesting so. It stands to reason that perhaps riskier plays into growth stocks should be replaced by more conservative investment strategies – say, by rotating into defensive, higher yield stocks. The idea holds merit, but a few days of selling on the back of a less than assured spike in global bond yields isn’t a cogent enough argument to abandon all risk-taking.
North America: Wall Street has demonstrated a broad-based sell-off. Once more: investors are adjusting to changing fundamentals in the face of higher global rates. Sectors with what may be dubbed stretched valuations are struggling, unaided by the kick-up in discount rates and unattractive yields. The tech-sector, embodied by the NASDAQ, has delivered the most significant losses for the US session, down in the realm of 4 percent; but the Dow Jones and S&P isn’t far behind, down about 3.1 per cent and 2.6 per cent (give-or-take) themselves. The sectoral map across all three of these indices is painted a rich red today: traders are apparently grabbing cash here, liquidating what they can before they get lost in the herd.
The end of a cycle? When markets experience the sorts of structural shifts being witnessed in the last fortnight-or-so, falling back on conventional wisdom can be illuminating. Not to say it provides the answers, but more so that historical knowledge can be drawn upon to show nuance and contrast in the haze of the present moment. What of the economic cycle here? The rationale behind traders’ behaviour might be described as a response to the ever-beating mechanics of the macro-economic process. The Fed is raising rates and growth is apparently reaching a peak, meaning that upside for capital growth may be diminishing. Turning these gains into cash and distributing profit could be the smart-money driver of equity markets, in the expectation that little more can be reaped from what has been sowed.
Upside exists: While compelling, markets function at the influence of far too many distortions to rest on the belief that we are end of cycle. The Fed’s unwinding balance sheet and progressive interest rate normalization is an act without precedent: cycles have been bent and interfered with, making prices a less reliable indicator of financial market phenomena. It’s in part why a sell-off such as the one witnessed in Europe and North America overnight elicits such nervousness. Markets can’t be sure what was once true still applies. In digesting the US experience and how it relates to Fed policy, it must be counter-balanced with notion that global monetary policy is still very accommodative. Granted, this is less so than 4 or 5 years ago, but in the grand scheme of things, with Europe and Japan still in negative interest rates, not to mention a Chinese government with a stimulus bias, reason to believe markets remain well supported are ample.
Bears abound: It’s intermingled with other concerns, for sure, so a bearish sentiment permeating markets is easy to understand. Mystery still reigns regarding the health of China’s economy, and the European Union and the economic zone it presides over looks inherently unsound. European markets participated in the equity market dumping, sucked into that black-hole by widespread panic selling, driving the DAX and FTSE down 2.2 per cent and 1.3 per cent respectively. Rates and bond markets de-risked slightly, however, boosted by the news that key Brexit negotiator Michel Barnier believes a Brexit deal could arrive as soon as next week. The pound has flown toward 1.32 while the EUR is sustaining itself at 1.1520, supported by a diversifying of risk across G4 currencies in response to the night’s equity rout.
Asian equities: The Chinese growth story may be the biggest determinant of the Australian share-market’s fortunes, however: slow growth in China means slow growth in Australia, so the ASX200’s sell-off this month can be explained-away easily when also factoring the raucous activity in global bond markets. The technicals become interesting for the ASX200 here, especially given that SPI futures are pointing to a dumping this morning, with weekly trend-line resistance at ~5860 in risk of being breached. For investors with a preference for the Asian region, attractive valuations abound, explaining the little jump in the Hang Seng yesterday, with investors lured into an appealing P/E ratio across that index below 10:1. Similar valuations exist in Chinese shares, offering a high-risk-high-reward dynamic for investors: a strong will is a requirement before jumping into Asian markets however, because volatility will stay the norm.
The Middle Kingdom: China will struggle for as long as the trade-war rages, but on balance policy markets appear well equipped to tackle the matter. Overnight it was announced that the Chinese government would include a greater number of financial institutions “systemically important” (read: too big to fail), to offset the weekend’s credit-boosting endeavour of cutting the Reserve Ratio Requirement. The slip of the off-shore Yuan to around 6.93 last night also suggests the PBOC will calmly and gradually let the currency ease to support China’s growth. Although lost in the bloodbath last night, commodities prices, down on aggregate apparently due to the tumble in oil, are displaying signs of some green shoots: industrial metals are broadly of off their lows, suggesting some signs of optimism toward Chinese growth and the region’s markets.

Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

The U.S. and Canada agreed to a trade deal that would preserve a three-way bloc with Mexico, setting the stage for their leaders to sign the accord by the end of November. The new deal will be called the U.S.-Mexico-Canada Agreement, or USMCA.
Mexican peso and Canadian dollar gains as uncertainty is lifted and greater stability takes hold of the Americas.
The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels.
In the UK this week the Conservative party is holding its annual conference. Brexit talks are bound to be high on the agenda and could cause some volatility as the narrative continues to play out. Hammond could also add flavour to this years budget which could hint at trading opportunities to come.
Tuesday sees a speech by Jay Powel. After the Feds interest rate rise last week speculators will be looking at any hints they have on monetary policy.
Asian overnight: A somewhat mixed session overnight has seen the Japanese markets push into the green, while the Australian ASX 200 provided the opposite move in the absence of Chinese and Hong Kong markets due to national holidays. Weekend data from China did little to raise confidence for Australian stocks, with the manufacturing PMI and Caixin manufacturing PMI both declining. The non-manufacturing PMI survey did rise, yet Australian concerns are certainly focused on the manufacturing sector as a lead to how their exports markets will fare going forward. Finally, the Japanese Yen declined on the news of weaker figures for the Tankan manufacturing index, non-manufacturing index, and manufacturing PMI.
UK, US and Europe: The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels. Italian Finance Minister Giovanni Tria is certain to face questions about the nation’s 2019 spending plan even though it’s not on Monday’s Eurogroup agenda in Luxembourg.
Theresa May faces the battle of her political life to retain control of the governing Conservative Party as top Tory politicians undermined her leadership. After arch rival Boris Johnson went for the jugular, Chancellor Philip Hammond swept in to defend her in an increasingly chaotic political scene.
Looking ahead, we have a host of economic PMI releases from Europe, although for the most part they are final readings. That being said, the UK manufacturing PMI is one of the few figures that represents the first release for the month, with markets looking for a marginal decline. That PMI theme carries into the US session, with manufacturing figures from both Canada and the US. Given the breakthrough in NAFTA negotiations, expect to see continued volatility for the Canadian dollar and Mexican Peso.
South Africa: The Jse Allshare Index is expected to open firmer amidst today's positive global equity market sentiment. Commodity prices are trading marginally lower and the rand slightly weaker as the dollar finds some short term strength. BHP Billiton is down 0.1% in Australia, suggestive of a flat to slightly lower start for local diversified resource counters. Today's economic calendar is light in terms of scheduled data releases, with UK and US manufacturing data perhaps the most relevant catalysts to look out for today.
Economic calendar - key events and forecast (times in BST)
Source: Daily FX Economic Calendar
9.30am – UK mfg PMI (September): survey forecast to rise to 53.8 from 52.8. Market to watch: GBP crosses
3pm – US ISM mfg PMI (September): forecast to fall to 60.5 from 61.3. Markets to watch: US indices, USD crosses
Corporate News, Upgrades and Downgrades
Tesla likely to dominate headlines today as the SEC ruling that Elon Musk should stand down as chairman (but maintain his CEO position).
Nielsen Interim CEO of Danske as Borgenfor relieved following money laundering scandal.
Assura continued to grow during the first half of the year to 30 September 2018, completing the acquisition of 39 medical centres and two developments at a combined cost of £108.2 million.
HNA Group Co. shrinks debt by $8.3 Billion. More needed to regain trust of investors.
TMX Group earnings release above expectations.
Barclays upgraded to buy at Berenberg
Castings upgraded to buy at Peel Hunt
Thomas Cook upgraded to hold at Berenberg
Kaufman & Broad raised to hold at Kepler Cheuvreux
AB InBev downgraded to hold at Jefferies
EasyJet downgraded to underperform at Bernstein
Sampo downgraded to neutral at JPMorgan
Telecom Italia cut to underweight at Barclays
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Asian markets fall for the fourth day and major currencies are generally trading in a tight range.
MSCI Asia-Pacific index down 0.5% whilst Japan's Nikkei (the Japan 225) loses 1%.
USD slightly softer going into US Initial Jobless Claims and FOMC minutes later today.
Gold is holding steady before Fed minutes, whilst copper and zine are stuck near their one year lows on trade woes.
Oil prices fall as Trump slams OPEC on twitter and blames the cartel for rising gas prices. This issue has been raised a number of times over the last few weeks as it could cause a major issue for the 'Trumphouse' going into the November midterms. Meanwhile China's duty on U.S. crude looms.
Goldman Sachs are still bullish on Commodities as a whole and believe trade war fears have been overdone. "All of these concerns have been oversold. Even soybeans, the most exposed of all assets to trade wars, is now a buy."
Clarification by the FCA on PPI compensation could means UK banks may have to add to the £45bn they’ve already set aside for claims.
FMOC later today.
Asian overnight: Asian markets traded lower once more, as market sentiment continues to suffer in anticipation of the impending Sino-US tariffs on $34 billion worth of goods. Yesterday’s tweet from Donald Trump calling for lower oil prices has had a knock on effect to the equity markets and tempered some of the gains seen through the week thus far.
UK, US and Europe: Looking ahead, the focus shifts from the UK to the US, with yesterday’s Independence Day meaning we will see markets on the other side of the Atlantic play catch up with Europe. Appearances from BoE governor Carney and ECB member Mersch will be the highlights for Europe, with markets more focused on the plethora of data points out of the US. ADP payrolls data, composite, manufacturing and services PMI figures in the afternoon pave the way for the latest FOMC minutes. Keep an eye out for the dollar for the impact of the days economic releases, while stock markets will be closely followed for how much they will follow yesterday’s lead in Europe.
South Africa: After yesterdays public holiday, US futures are trading flat this morning while Asian markets continue to find short term pressure lending itself to a flat to lower start on our local bourse this morning. The dollar is trading relatively flat while commodity prices, which have a relatively large impact on the local SA index, trade mostly lower ahead of the US implementation of trade tariffs on China. BHP Billiton is trading 0.54% lower in Australia furthering the notion that we will see a softer start on locally listed resource counters today. Tencent Holdings is trading 0.5% lower on the Hang Seng, suggestive of a similar start for major holding company Naspers this morning.
Economic calendar - key events and forecast (times in BST)
1.15pm – US ADP employment report (June): expected to rise to 180K from 175K. Markets to watch: US indices, USD crosses
1.30pm – US initial jobless claims (w/e 30 June): forecast to be 221K from 227K. Markets to watch: US indices, USD crosses
3pm – US ISM non-manufacturing PMI (June): forecast to fall to 58.2 from 58.6. Markets to watch: US indices, USD crosses
4pm – US EIA crude inventories (w/e 29 June): expected to see stockpiles fall by 1.6 million barrels. Markets to watch: Brent, WTI
7pm – FOMC minutes: these will provide further insight into the Fed’s decision to raise rates, as well as the shift on the committee that resulted in the dot-plot suggesting four rate hikes in 2018, from the previous three. Markets to watch: US indices, USD crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
China’s ZTE has received a 30 day trade ban relief from Trump. The US provide a third of the components needed by the smartphone manufacturer who have seen a 60% decline in share price wiping off $11bn from the company valuation since the trade war talks.
Anglo American sees volatility spikes on take over rumours.
Anglo American Platinum Limited (SA) has accepted an offer from Royal Bafokeng Platinum Limited ("RBPlat") to purchase its 33% interest in the Bafokeng Rasimone Platinum Mine joint venture (“BRPM JV") for a total purchase consideration of R1.863 billion.
Associated British Foods said its full-year outlook was unchanged, as improvement at Primark is cancelled out by weakness in its sugar division. Group revenue for the 40 weeks to 23 June was up 3% overall, and 2% at actual exchange rates. Primark sales were up 6% on last year, but AB Sugar revenue was 17% lower.
Purplebricks suffered an adjusted operating loss of £21.3 million, despite strong growth in the UK and Australia. This compares to a £5.1 million loss in 2017.
Glencore has announced a $1 billion share buyback, which will run from today until the end of the year.
EasyJet carried 7.9 million passengers in June, up 2.3% from a year ago, while the load factor rose to 95.4% from 94.8%.
Aegon upgraded to buy at HSBC
Bauer upgraded to buy at Kepler Cheuvreux
Tullow upgraded to overweight at Barclays
Daimler upgraded to buy at Bankhaus Lampe
Hapag-Lloyd downgraded to neutral at Citi
Kappahl downgraded to reduce at Kepler Cheuvreux
Munich Re downgraded to neutral at JPMorgan
Soco downgraded to underperform at RBC
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Please note: This information has been prpared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Asian equity markets mixed overnight on better than expected Trump trade talks, but poor US futures - notably Facebook results.
Saudi Arabia is suspending the shipment of oil via the Red Sea following an attack from Yemeni Houthi.
Gold steady as dollar eases after US and EU trade talks.
Big results day for the European market with Shell, Diageo, Nestle, Daimler, and AB InBev set to give trading updates.
The corporate focus remains crucial for US markets of late, with Amazon, Intel, McDonald’s, and Starbucks all reporting their latest figures today.
Asian overnight: Overnight markets traded in somewhat indecisive fashion, with weakness in Chinese and Hong Kong indices coming amid strength in the Japanese Topix index. The Nikkei traded marginally lower, while the ASX 200 was flat on the session. This comes amid a session of mixed messages over in the US, with disappointing Facebook earnings driving a sharp decline in tech stocks. However, with the US and EU striking a truce and promise to bring down tariffs across the board, there is also a bullish theme to be seen.
UK, US and Europe: The move in the US is led by the Nasdaq following a poor reception to Facebook results. The ongoing trade war narrative remains in the market place as Donald Trump meets with EU leaders.
European data has kicked off with the release of the German Gfk consumer climate number, which ticked moderately lower from 10.7 to 10.6. The eurozone focus will be maintained through the day, with today’s monetary policy decision from the ECB bringing heightened volatility and focus on the euro. We are unlikely to see any move from Draghi & co, yet this may not necessarily mean that we see the meeting pass without any fireworks. The US focus will be upon the impact of the EU-US trade deal, with many hoping this would become a blueprint for future dealings with China. On the calendar front, look out for core durable goods unemployment claims, and crucially the US trade balance data.
South Africa: Markets are expected to trade cautiously ahead of this afternoons ECB meeting and tomorrows Advance GDP data out of the US. Metal prices are trading flat to lower this morning. The rand is slightly weaker this morning although, trades near its best levels of the last few weeks. BHP Billiton is 0.3% lower in Australia, suggestive of a softer start for local diversified resource counters. Tencent Holdings is 2% lower in Asia, suggestive of a similar start for local holding company Naspers which has a 20% weighting in the Top40 Index.
Economic calendar - key events and forecast (times in BST)
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Tullow Oil reported a pre-tax profit of $55 million for the first half of the year, from a $348 million loss a year earlier. Revenue was up 15% to $905 million and net debt fell to $3.08 billion. The firm said that it did not yet believe a dividend was appropriate.
Vodafone reported a 4.9% fall in revenue for the first quarter, but annual organic adjusted earnings guidance was left unchanged at 1-5%.
ITV said that first-half adjusted pre-tax profit fell 7% to £354 million, but revenue was 8% higher at £1.85 billion.
Royal Bafokeng Platinum (SA) anticipates a loss per share ("LPS") for the six months ended 30 June 2018, of between 13.5 cents and 10.5 cents (representing an improvement of between 10% and 30%), compared to a LPS of 15 cents for the previous corresponding period (the six months ended 30 June 2017). A headline loss per share (“HLPS”) of between 7.5 cents and 4.5 cents (representing an improvement of between 51% and 70.6%) is anticipated, compared to a HLPS of 15.3 cents for the previous corresponding period.
Anglo American Plc (SA) a half year financial update showed earnings per share to have decreased by 6%.
Please note: This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

The United States and China Jostling for Economic Supremacy
The world’s largest economies are starting to update on the status of their health. And, though it may not seem to be the case in these speculatively charged markets, financial performance relies heavily on a healthy global expansion. This past Friday, China reported its third quarter GDP reading. The 6.5 percent clip would be an enviable pace for most of the developed world, but for this debt laden country, this is slowing to a pace that is more likely approaching ‘stall speed’. In historical context, the reading represented the slowest clip of expansion for the country in 9 years – a period that was plagued by a global recession that had in turn prompted the government to plow funding towards infrastructure spending to buy it more time. Time is crucial for the world’s second largest economy. It needs to be balance its relatively rapid pace of growth with financial stability long enough that it can solidify its position as one of the dominant economic superpowers.
For decades, the country has relied on the rapid growth that is borne from trade, financing, speculative appetite and practices that emerging market countries often utilize that are considered unacceptable among their developed counterparts. That said, it is odd that the second largest economy is still classified as an ‘emerging’ market and one of the roots of contention from the United States and others. Over the past three to four years, China’s intent and timeline have become more clear. Having avoided a the Great Recession, they had seen their standing in the global economy move up to a more stable plateau. To ensure they secured their position, the government has attempted to turn towards a more accepted growth plan and to reduce capital borders in order to become a full-fledged member of the globalized community. Without interruption, that initiative would have succeeded. Unfortunately for the Politburo, the Trump Administration has exerted enormous pressure on the country and threatens to undermine growth and/or tip the financial stability balance to create a permanent hurdle.
The question of how successful this effort to stymie the economic engineering effort will be is only one facet of the equation, there is also the question of how much fallout the US itself will suffer along the way. The United States’ effort to bring trade pressure against its largest economic peer will come with an economic cost to the instigator, which they are attempting to offset by fostering investment and business growth through tax cuts and fiscal spending – a combination that breaks norms of its own (deficit control). In the week ahead, we are due the United States’ 3Q GDP update. This is the period through which the trade war truly ramped up, and it will be used as an evaluation of whether the polices are boon or burden at home. Should this and other more timely economic readings head lower, buoyant sentiment readings over the past year will start to flag and make a self-fulfilling prophecy of financial concern.
The Euro’s Fundamental Path is Growing More Complicated
For the most part, the Euro has spent the past 18 months either in a fundamentally enviable position or simply a neutral bearing that could take advantage of weaker counterparts. Economic activity has been slow but steady with members bearing extraordinary austerity following the Eurozone sovereign debt crisis finally turning a corner. Further, the initial threat of the region having to pursue the same costly economic war against the United States was averted when EU President Juncker agreed with US President Trump to avoid further tariffs so long as both sides continued to negotiate. Meanwhile, the mere anticipation of a rate hike from the European Central Bank leveraged the kind of speculative front-running appeal for the Euro through much of the past year that so closely mirrored the Dollar’s own charge in 2014 and 2015. That passive state of speculative appeal is starting to falter however. While growth readings still seem to be following a stable path, the commitment to slower growth to achieve fiscal improvement through austerity is starting to break down. Populism is spreading across the continent.
Chief concern in the evaluation of Euro-area conviction is Italy. The country’s government has applied pressure and backed off in regular tide of ebb and flow; but through these phases, ever increasing the tension. It seems we have reached the point of no return where rhetoric will no longer be enough to satisfy markets. Heading into this past week’s EU Summit, the leadership of the Italian government made clear that it intended to rebuff budget restrictions to support growth and fulfil campaign promises. There was no mistaking the Union’s perspective on Italy’s intended path: they said the spending and deficit projections in their plans were unacceptable. This standoff remains unresolved, but the financial markets are starting to pull back to curb their exposure to the risk. The FTSE MIB is suffering more acutely than its large counterparts and Italian sovereign bond yields are climbing rapidly. A 10-year yield spread of over 400 basis points over the Germany bund equivalent is considered a level akin to serious financial pressure.
We were just above 300 basis points to close out this past week, but that was before the news after the close that Moody’s had downgraded the country’s credit rating a step to Baa3. That will have an inevitable impact on funds that have to abide credit quality when dictating their exposure. In the week ahead, we have another assessment of Italy’s financial condition coming from Standard & Poor’s. This fundamental impact on the Euro is not the only theme competing for influence. Monetary policy is another fundamental strut that could buckle or hold the currency strong through the growing pressure. There is no change expected from the gathering Thursday, but there is growing concern over the internal and external risks for the Eurozone. If they cool expectations for the first hike coming mid-2019, there is still premium for the Euro to give up. A further complication to consider: if the Euro drops materially, expect the Trump Administration to raise its pressure on the regional economy.
Brexit Risk Jumps after EU Summit, Rumor of Border Breakthrough, Protests and New Credit Ratings
The Brexit countdown is taking on a Edgar Allen Poe-level resonance. The European Union summit this past session was specifically targeting discussion between the UK and 27 leadership to see if they could make a high-level breakthrough on the divorce proceedings. The primary hold up at the end of the gathering remained the border issue and the complications that it invites. It may seem that there is plenty of time to negotiate with a little more than five months until the official split, but there is considerable work to do in passing the proposal through so many different governments and working out the technical aspects thereafter. So long as this situation is unable to pass the critical step of an acceptable draft agreement between both sides, the Sterling is likely to see steady retreat as capital funnels out of the country to avoid the uncertainty facing London’s financial center specifically. With the risks growing, the attention on progress will intensify.
With that said, there seemed a possible breakthrough in the closing hours Friday when it was reported that Prime Minister May was prepared to drop their Brexit demands on the Irish border issue in order to earn a breakthrough. Such a move would likely earn the ire of Brexiteers who would balk at likely permanent participation in the EU’s customs union. It remains to be seen if the UK’s government would back such a appeasement, but it doesn’t seem enough for many Brits. Over the weekend, a protest in London calling for a second EU referendum drew reportedly between 600,000 and 700,000 participants – one of the largest in the capital’s history. It is unlikely however that the government will return to the polls on the issue unless there are a number of political turns that force the issue. Ahead, we will have to keep a very close eye on the headlines to see what transpires in the political environment in England as well as between the UK and EU. That doesn’t mean though that there aren’t any meaningful milestones on the docket to mark on our calendars.
At the very end of the coming week – after the close Friday – we are due two credit rating updates on the United Kingdom from Standard & Poor’s and Fitch. These groups have generally maintained a wait-and-see perspective until it became clear that there would be a compromise scenario or a crash out. However, time is a factor that they can no longer ignore in this equation. With each week that passes without a breakthrough, the economic and financial ramifications deepen. More stark warnings are likely if there is not a confirmation of the border issue and a downgrade is not impossible.

Written by Kyle Rodda - IG Australia
US traders return: It’s nice to be back to some normal programming. The big-wigs on Wall Street have returned to their desks and volumes across the market are looking far healthier. After last week’s sell-off and volatility, and well before the meaty part of trade this week, traders appear to have had their appetite for risk whetted. Only slightly, of course: there is an acute awareness that the next seven days will hurl up some major events and some significant uncertainty. However, the VIX is off its highs and below 20 once again, and riskier assets are feeling some love. There were patches of underperformance yesterday, naturally – our ASX200 happened to be one of them, along with Chinese indices – but as it applies to most the major indices, a healthy coat of green is covering the screen to kick-off the first 24 hours of the week’s trade.
Asian session: The tide turned during the Asian session, with no true impetus behind it. If anything, the fundamentals we received during Asia’s trade made for ugly viewing: Japan’s Flash Manufacturing PMI data was released, and that disappointed markets, adding to fears of slower global growth; while New Zealand Retail Sales figures put-in an abominable showing, printing flat quarter-on-quarter versus expectations of a 1.0 per cent expansion. They were non-stories, though, in the ultimate context of yesterday’s trade, as futures markets pushed-higher on pricing of a solid start to the week for equity markets. Some macro-excuses to buy stocks did arrive in the European session, when reports that Italian policy makers were reviewing their maligned budget filtered through markets, compounding the slight lift in confidence engendered by the weekend’s rubber-stamped Brexit deal.
European trade: Across European indices, the DAX jumped 1.45 per cent, the FTSE climbed 1.20 per cent, and the Euro Stoxx 50 1.13 per cent. Bond yields edged higher across the Continent and throughout North American, while the positive developments in the Italian fiscal crisis narrowed the spread between German Bunds and Italian BTPs. The fall in US Treasuries saw the yield on the 10 Year note easing to 3.06 per cent and the yield on the 2 Year note to 2.83 per cent, narrowing the spread between those two assets to approximately 23 basis points. The higher yields supported the US Dollar, which returned to the 97-level according to the US Dollar Index. The Japanese Yen was the biggest loser of the major currencies, dropping over half-a-per cent to trade within the middle of the 113-handle; however, gold, the Euro and Pound traded relatively stable.
Wall Street: At time of writing, US stock indices are on the cusp of registering quite a solid day. Volumes are higher on average too, reflecting that there is some substance behind what is being dubbed as a "relief rally". It's more a bounce to be fair – the kind we've seen before since the global stock market correction took hold. Nevertheless, for the bullish and opportunistic, it's justifiably proven a respectable 24 hours. US tech stocks have lead the market higher, supported by a bounce in oil prices, which have helped narrow corporate credit spreads and spur greater appetite for risk. The troubles for tech-stocks and oil haven't passed yet -- the big picture hasn't changed -- though (just maybe) there are signs that the bearishness driving the downside in those assets is abating.
ASX200 yesterday: The action in financial markets in overnight trade has SPI futures indicating a 44-point jump at the open – a dynamic if realised, will regain yesterday's session's losses from the opening bell. Activity was quite high on the Australian share market yesterday, with volumes approximately 5 per cent above the 100-day moving average. The liveliness in markets was predominantly driven by a dumping of the mining stocks, which were pummelled by the considerable sell-off in iron ore, following the plunge in steel rebar futures over the weekend in response to greater concerns about Chinese economic growth. Overall, the materials sector was responsible for a noteworthy 25 points of the ASX200's losses during the day’s trade, with the likes of BHP and Rio Tinto sliding just over 3.5 per cent.
Aussie Dollar: The circumstances also led to a slight pull back in the AUD/USD, which generally has lost some of its lustre. Upside momentum has slowed, as the pop higher brought-about by a squeeze on traders’ short positions looks to have stalled, if not subsided. Macro-fundamentals have eased the pressure on the AUD/USD in November, as traders unwind their bets of an aggressive Fed in 2019: the yield-spread between the interest rate sensitive US 2 Year Treasury note and the 2 Year Australian Commonwealth Bond narrowed to as little as 75 basis points. That has expanded once more, but with heightened volatility in the markets and sentiment interfering with fundamentals, a crude assessment of the Bollinger Band suggests that the myriad of macroeconomic risks in the next month could see the AUD/USD move within a broad range between 0.7020 and 0.7450 into the medium term – with the local unit currently smack-bang in the middle of that range based on the weekly chart.
ASX200: Looking ahead: Now that financial markets have returned to a normal state, getting a gauge on sentiment becomes considerably easier. Positioning will begin taking place across asset classes for the series of US Fed related events in the next 4 days, combined with the weekend's major G20 meeting. The implications for the breadth of global markets are seemingly endless, but as it applies to the ASX200, the outcome of both concerns is profound. IG client sentiment is giving generally bearish signals presently – something that will only become further entrenched if the Fed come-out more hawkish this week and US-China trade negotiations deteriorate. Support at 5600 (give or take) will be where the bulls will be hoping for a floor in the event of a worst-case scenario; while a bullish break-out can't be confirmed until at least 5930 is breached.

It is Not Wise to Start Financial Fires in a Market so Parched for Value
The financial markets find themselves in between two storm fronts. On the one hand, there is the seasonal liquidity drain that is associated with Summer trade. More historical norm than actual exchange closures, the ‘Summer Doldrums’ present a consistent curb on volume, open interest, volatility and productive trend year after year. However, the restraint is not guaranteed. Though not as common as those Fall (for the Northern Hemisphere) triggered crises and deep bear trends, there are certainly bouts of panic that originate in these quiet months. And that is why we should pay closer attention to the other storm front that has consistently stood at the border of our collective consciousness. We have watched as growth forecasts have cooled, the limitations of monetary policy to offer temporary support have entered mainstream discourse and protectionism has emerged to threaten one of the most consistent sources of stability in globalization.
These are not new risks, but they have been regularly brushed to the side in favor of short speculative opportunities to be pursue distractedly. Yet, draining liquidity in these questionable conditions has acted to call greater attention to the risks at hand. And, now with the tension applied by the United States on peers and counterparts alike, we are seeing the growth of clear conflict threatening to force the issue of more candid evaluations of value. Trade wars had – and still has – the capacity to trigger a full scale deleveraging of excess risk, but the temporary stay in the spread of kind-for-kind retaliations among developed world giants soothed imminent fears. This front is likely to erupt once again in the not-to-distant future under more pressing circumstances.
In the meantime, a sister action in the form of US sanctions placed on less-friendly countries may take up the reins on global sentient. The Trump administration reversed its participation in the nuclear deal with Iran (27th largest economy) and restored sanctions on the country much to the condemnation of the other participants of the deal. The US has also moved to apply new penalties on Russia (12th largest economy) in response to its supposed use of nerve agent on a former spy. The USDRUB soared to a two year high this past week. And, showing the most severe short-term impact of all was the quickly escalating sanctions that the US is placing on Turkey (17th largest economy) for ostensibly the country’s refusal to release a US pastor swept up during the failed coup. The country’s currency has dropped over 55% versus the Dollar (through Monday’s open), and this time the financial exposure for major economies (particularly European) was quickly seized upon. Let’s see if this fire can be contained.
Is the US Placing Pressure on Major Counterparts Like the EU Through Proxy?
The Trump Administration has likely started to recognize that there are rumblings of coordination from those countries that are already under the influence of the United States’ sanctions or feel they soon will be. That is likely a key reason the President struck a conciliatory tone with EU President Juncker when a few weeks ago he agreed not to pursue further tariffs – particularly on autos – so long as the two economic superpowers were negotiating. That said, it is clear that the strategy being employed on the US side depends on applying enough pressure that counterparts are willing to sacrifice more in order to win a compromise to find relief. That brings in the proxy pressures that the US has seemingly favored over the past weeks in the stead of outright trade wars.
As mentioned above, the US has announced sanctions against Iran, Russia and Turkey in short order. These moves would certainly draw less criticism from Americans dubious of the government’s foreign policy moves as each is considered more adversary than ally. Yet, there may be more to these pursuits than simply following a moral compass with global relations. Other countries have supported efforts to promote relationships with these countries over the past years which has entailed exceptional investment alongside diplomatic capital. On two fronts in particular, this particular application of pressure has had enormous side effects for the Europe.
With Iran, the EU is still trying to hold together the agreement made between the OPEC member and the other participants of the original nuclear agreement, taking a lead to promote stability. When President Trump stated in a tweet that those that county to do business with Iran could have their business with the US halted, some business leaders took it seriously and looked to curb trade. Yet, the EU responded saying any European companies that complied with the United States’ demands on Iran – and thus jeopardized the effort to hold the agreement together – would face penalties from European authorities. With Turkey, there is no slow build up. The rapid tumble in the country’s currency (Lira) has risked the stability of assets foreign interests have pursued. European banks are particularly exposed and that led the ECB to voice concern over their connection should instability grow. While this rapidly escalating proxy pressure on Europe by the United States’ actions maybe unintentional, the nature of how it is playing out suggests otherwise.
Dollar Rally a Result of Policy and Justification to Devalue?
On July 20, President Trump lashed out (via Tweet as his want) at the Euro and Chinese Yuan claiming the currencies were being manipulated to render an unfair competitive advantage to their respective economies. Such claims are dubious at best. With the Yuan, history shows the country has a penchant for exerting influence over the activity level and direction of its ‘Renminbi’ to help promote economic, financial and social stability at home. However, their ability to keep all these efforts leveled out on the horizon is increasingly troubled. What’s more, a steady charge higher for USDCNH is exactly what would be expected if the United States’ tariffs on China were having their intend effects.
As to the criticism of the Euro, there is little evidence to support that view. Four years ago, the anger would have been justified when the ECB said it would applied monetary policy in order to prevent the EURUSD exchange rate from passing 1.4000 – there must have been an agreement behind closed doors to allow this given how blatant the effort. This claim now, however, finds little support in action or event threat. Again, this is likely evidence of a strategy with questionable execution. Making a claim that multiple major currencies are being unfairly devalued – one others may agree to out of historical assumption and the other more dubious – can be used as pretext for enacting a policy aimed at counteracting the stated inequity.
If there is indeed interest for US officials to abandon the ‘strong Dollar’ policy as has been hinted at multiple times over the past months and actually introduce policy to sink the currency, that appetite will be significantly bolstered this past week with the surge for the USD versus both the ‘majors’ and emerging market currencies. Arguably the result of the Trump Administration’s own policies, it may nonetheless serve as the foundation for a new course of global financial conflict.

Written by Kyle Rodda - IG Australia
I'm mad as hell and I am not going to take this anymore! It was this sentiment in November 2016 that raised political-renegade and anti-establishment Republican Presidential candidate Donald Trump from rank-outsider and laughing-stock to President of the most of powerful country in the world. No one seemed to see it coming, and as electoral college votes were slowly counted on Election Day almost exactly 2 year ago, the world sat in awe as what was considered a near impossible feat only 18 months prior came to shocking fruition. America, we were told, was about to become great again.
Almost two years to the day has passed, and with arguably the most significant US mid-term elections in recent memory to be decided by the American voter over the course of the next 24-48 hours, the question becomes: will the American polity deliver another shock to the world? If there's one thing that 2016 reminded financial markets participants, it is that the map is not the terrain. Pollsters, pundits and market traders may try to price in the probabilities of a series of outcomes, but all the information that makes up our complex political reality remains too difficult to access and understand.
A humbleness is always required when forming assumptions on what truths the democratic process may reveal: a modest acknowledgement that though the world may look clear and complete to our own eye, a total comprehension of the various and unique realities occupied by the several hundred million of individuals dictating the historical process remains beyond the reach of a single mind. In saying this, it does not mean an honest enquiry should not be undertaken to induce a possible explanation for the events of the past, and subsequently infer what this may mean for events in the future.
It's telling that the quote included in the opening sentence of this commentary comes from the classic-American film, Network, produced all the way back in 1976. In the film's famous monologue, its protagonist -- a ranting T.V. anchor turned prime-time cultural evangelist named Howard Beale -- delivers a deranged and scathing assessment of modern American life: "Everybody knows things are bad. It's a depression. Everybody's out of work or losing their job...and there's nobody out there who seems to know what to do, and there is no end to it". The rant finally ends with Beale imploring his viewership to go to their windows and scream "I'm mad as hell and I am not doing to take this anymore!"
Though the cultural context of the film was vastly different to that of 2016 America, the voting members of the American public at the year’s Presidential election proved they felt the same. After 9 years of what must have felt like empty promises from the political elite about an economic recovery that never trickled down to the middle class, America's silent majority finally cracked and spewed forth into mainstream society. They were sick of society's rich getting richer thanks to policies that didn't seem to be designed to help them; and they were tired of the fact that the members of the (supposed) elite class were shipping off their jobs -- to workers in some foreign nation, no less, and all in the name of saving a buck at their expense.
It was these set of circumstances -- which have been grossly simplified here, of course -- that galvanised a significant sub-section of American society to scream at the ballot box in November 2016 "I'm mad as hell and I'm not going to take this anymore". Though in our reality it was not a psychotic T.V. anchor who proved the mouthpiece of the people, but a New York businessman, turned reality TV star, turned social media provocateur, who promised them that he could return to them what was rightfully theirs’ -- and in doing so, Make America Great Again.
This social upheaval turned the global political order upside down. The once inexorable forces of globalisation, political liberalism, and expanding economic interconnectedness were all the sudden turned on its head. The enraged and forgotten people of American society were set to reclaim their destiny. But as the world awaits the latest expression of the God-given and inviolable right of the US voter to exercise their choice on who will compose their chambers of congress, the question is: are Americans, as they were in 2016, still mad as hell?
It may be cynical, but in a representative democracy like the US, voters will vote for those who can promise to improve their quality of life and economic fortunes. In the lead-up to the 2016 US election, the fledgling US economic recovery had seemingly fizzled, with little sign of any benefit to the middle class. The economy was beginning to flatline, the jobs being created were low skilled and undesirable, wages and living standards were stalling or going backwards in real terms, and the stock market was trading sideways. US voters felt poorer, their opportunities appeared dim, and the future didn't look like it would provide anything better.
Move forward to November 2018 and it feels as though the world (and the American voter) is in a very different place. The US economy is roaring, growing at 3.5 per cent according to the last reading -- a pace strong enough to keep the US labour market at full capacity and the unemployment rate to 3.7 per cent. Inflation remains stable despite the ever-tightening labour market, but as of Friday night's Non-Farm Payroll figures, wages growth is above 3 per cent per year for the first time since the GFC. The stock market, despite experiencing two major corrections this year, has also hit record highs twice in 2018 and consumer sentiment is still trending upward towards 15-year highs.
Love him or loathe him, US President Trump has played a major role in bringing about this sense of economic euphoria. Politicians often over-state their influence and importance to the fortunes of the economy. The US economy was trending in the direction it currently finds itself in for several years, with the extreme monetary policy enacted by the US Federal Reserve likely its greatest driver. However, massive (and probably unnecessary) late-cycle fiscal stimulus from the Trump administration has sent the US economy into warp speed; while his chest-beating and patriotic fervour has ostensibly unleashed investors’ animal spirits.
The question is now though, whether voters will attribute their relatively better lot in life to US President Trump, and award him at the polls. Undoubtedly, other issues come into consideration for the very diverse American electorate when voting Republican or Democrat. Irrespective of the very many and meritorious issues motivating the US electorate, logic does suggest that if the popular narrative is true -- that President Trump was elected based on social and economic dissatisfaction, and that he himself is responsible for turning this around -- some kudos at the ballot box could be forthcoming.
Betting markets at first glance aren't supporting this notion: the bookies have the democrats winning back the House of Representatives relatively comfortably, and the Senate looks set to be held by the Republicans. Such an outcome, although far from an endorsement of US President, would not be a calamity for him. It's well known that an incumbent President generally loses seats in congress come their first mid-term elections, as the sheen comes-off "the new guy" following the realisation that he (or presumably she, when the day arrives) can't meet every expectation they set as a candidate.
(Source: The Conversation)
With this all considered: what could this all mean for financial markets? First, the major caveat must be that the major forces behind economic activity will almost certainly remain the same: the US economic cycle will continue to unfold, and the US Federal Reserve will likely persist with its rate hiking cycle. Amid the political noise, when it is all said and done, the economy will do what the economy intends to do, meaning the flow on impacts to financial markets, particularly regarding the risk to equity markets of higher global interest rates, will keep broadly unchanged.
In saying this, there are several areas where marginal changes may be witnessed. Primarily, the best outcome for financial markets is often the expected one -- the one already "priced in" -- so a Democratic house combined with a Republican senate might be the ideal scenario here. Looking further into the many nuances though, several elements of the Trump doctrine and policy platform may come under fire consequent to the retaking of some power from the Republicans by the Democrats.
The biggest issue up for grabs must be the trade war and broader US-China relations. The past week has seen a softening stance from the White House towards China, which has talked up the imminence of a deal between the two warring nations. An extra dash of Democrat blue in congress reintroduces the globalists to the equation, who will likely prove much more sympathetic to the notion of making peace with the Chinese. President Trump will maintain his executive powers, implying that he can continue to slap-on his tariffs on national security grounds if he sees fit. However, with a more divided congress, horse trading becomes a bigger thing, meaning concessions demanded by Democrats could temper Trump's hawkishness.
A de-escalation in the Trade War would be considered good for Chinese and therefore global growth. The possibility of static or reduced tariffs would assay come anxieties regarding slower Chinese growth and would possibly mark a definitive turn-around in China's equity bear-market. The Yuan would also appreciate, leading to a short-term pop higher in the Australian Dollar, supported by a probable jump in commodity prices all the way from iron ore, to the classic barometer of economic growth prospects: copper. The Japanese Yen, gold prices and even the US Dollar would fall on the back of higher risk appetite, although the greenback would likely sustain its trend higher in the medium to long term by way of virtue of the US Fed's interest rate hikes.
The Nikkei and DAX, which have been the heaviest hit of developed market indices in this trade war, would probably experience an uplift, courtesy of reduced anxieties about industrial tariffs -- especially on automobiles -- and softer Chinese growth. Similar gains would be experienced on the Dow Jones, and to a lesser extent the S&P500, which would benefit from a rally in industrial stocks. The ASX200 would participate in the global bounce in growth optimism, led by gains in commodity prices and subsequently the materials sector. Persistent concerns about the strength of the big banks however— due to domestic challenges regarding higher global funding costs and the softer Australian property market – would still smother optimism.
The other hot issue of financial market import coming out of the US mid-terms will be US President Trump's fiscal policy. Such as with the trade-war, greater checks and balances on the President from increased influence by the Democrats on the White House would force some fiscal restraint. The twin deficits building because of Trump's fiscal profligacy would be curbed, easing pressure on bond yields towards the back end of the curve. Economic growth might well slow down somewhat as stimulus is removed, taking some of the heat out of the US economy; but price pressures would settle somewhat because of a more stable economy, removing some of the impetus for the US Fed to hike hastily.
The outlook for earnings growth in US equity markets would probably weaken as fiscal stimulus waned - though it must be remarked this would have happened to some extent anyway considering Trump's corporate tax cuts have already been absorbed by shareholders. Ultimately, although inflation risk would be reduced, significant enough price growth would almost certainly remain. The US Federal Reserve's interest rate hikes would stay atop of the list as the biggest risk to share market performance, as higher rates stretch the valuations on growth stocks in sectors like US tech further, undermining the upside to equities indices such as the NASDAQ. A possible benefit, though, would be the counterbalance from the Democrats’ influence in congress on the often-unpredictable President Trump, but that may come in the form of improved sentiment alone.
Overall and in the end: as has already been stated, but bares mentioning once more, speculating on the political, economic and financial market outcomes of the democratic process is fraught with danger, and must be approached with humbleness. It's nigh on impossible to tell with complete certainty what the US mid-term elections will hurl at the world, let alone financial markets. The Trump election shocked the world in 2016, as the American polity stood-up to make their dissatisfaction known to the global community. Whether such resentment can be mobilised again and cause another historical upset, only time will tell. One thing is for certain though, and that this mid-term election is a referendum on President Trump's legitimacy, and will have tangible impacts on global politics, economics and financial markets in the months and years ahead.

Written by Kyle Rodda - IG Australia
The fallout: The US mid-terms have passed, and while there were signs throughout yesterday's trade that the vote would throw up a few curly situations, the outcome fell broadly in line with market expectations. The VIX has dropped and US equities, paced by the NASDAQ, have subsequently rallied, primarily on the knowledge that everything went according to plan -- proving the notion that the biggest drag in markets all-in-all is uncertainty. There are enumerable possibilities, all with various implications for traders, opened-up by yesterday's result, and one assumes that they'll be digested calmly by market participants in the times ahead. Ultimately, however, one major risk has been navigated through without much bloodshed, allowing traders to return their attention to arguably the more significant, fundamental issues at hand.
Gridlock: The term that perhaps has been hurled around most since it was confirmed that the Republicans would hold the US Senate and the Democrats would nick the House of Representatives is "gridlock". In the so-called "age of bipartisanship", a split in power within congress all but assures the adversarial tone of the late-Obama era returns. In a representative democracy, in principle, that need not be cause for concern, but it does imply greater inertia in legislative action. That means Tax Cuts 2.0 (as they've been dubbed) are all but dead, buried and cremated, and that a push for fiscal restraint by the Democrats could complicate issues around budget policy and the national debt ceiling in the future.
US bond markets: The possible dynamic has shown up in prices already. An analysis of the US Treasury yield curve reveals this. The fact yesterday's results ensure a possibly stagnant congress has been interpreted as a continuation of the status quo in the short term. The yield on interest rate sensitive US 2 Year Treasuries has ticked higher to 2.94 per cent over night on expectations that the current growth formula will go unchanged – and lead to a continuation of the US Federal Reserve's rate-tightening regime. Conversely, the yield on fiscal policy (read: debt and deficit) sensitive US 10 Treasuries has dipped slightly to 3.19 per cent, on the belief that a debt blow-out from Trump's planned tax cuts and infrastructure spending program will not go ahead.
Currency markets: The consequence of this shift in expectations regarding US fiscal policy is the US Dollar has sold-off overnight. It appears the interplay of forces is the ideal recipe for a slower rise in the greenback: global growth remains supported in the short-term, benefitting riskier currencies, but lower long-term yields are making the USD relatively less attractive. The knock-on effect has seen the EUR and Pound rally above 1.1450 and 1.3140, supported by strong German industrial output figures last night; and commodity-bloc currencies such as our own Australian Dollar has definitively broken its downward trend to trade at 0.7280. The balance between a weaker greenback but greater risk appetite has kept the USD/JPY flat at 1.1340, while gold has also remained steady at $US1226 per ounce.
What for the trade-war? The implications for the other major global macro-risk from yesterday's vote, the US-China trade war, has thus proven a touch unclear. China's equity markets closed lower for the day, the Yuan whipsawed, and prices in growth proxy commodities -- such as copper --fell, seemingly on the uncertainty of what a greater representation of Democrats in Congress means for US foreign policy. In principle, the philosophically liberal-internationalist Democrat party could lobby for greater multilateral engagement with China and other world powers, but in this new age of populism, old assumptions may no longer prove reliable. Futures markets are projecting a better day for the Asian region, however a flicker of greater volatility in Asian markets should be expected leading into the highly anticipated G20 summit at the end of the month.
ASX200: SPI futures are indicating a 28-point jump at the open for the ASX200 this morning, as the local market looks to extend its solid gains this week. The day yesterday ended in a 0.4 per cent gain for Australian shares, on reasonably solid breadth of 64 per cent. Volume was below average owing to the major event risk of US mid-term elections once again, however a rotation away from defensive sectors and into growth stocks and cyclicals supported the narrative that the outcome of yesterday’s vote is positive for the equity bull market. The ASX200 now sits on the cusp of technically reversing the short-term trend brought about by October’s massive stock market correction, with a meaningful hold of around 5930 today the level to watch.
Today’s major events: Amid all the news and analysis around US mid-terms, a quick refocusing on the week’s other risk-events will emerge in markets today. Of significance today: the RBNZ met this morning – in what is probably the key event for the Asian region – and kept interest rates on hold as expected. The tone struck by the RBNZ has thus far been judged as rather dovish, legging the Kiwi Dollar’s run higher above the 0.6800 handle. Turning attention to more pressing global event-risk, it comes no bigger than tonight’s meeting of the US Federal Reserve. The Fed won’t move rates, that much is known. The attention will be directed instead towards the Fed’s commentary about its flagged December interest rate hike, plus its views on further rate hikes into 2019.

Asian overnight: Another bearish session overnight saw Chinese and Hong Kong indices lead the decline, with the first round of tariffs on Chinese goods set to take effect on Friday. The recent decline in the yuan was arrested, with strong dollar selling pressure from Chinese banks looking like intervention from the Chinese authorities. Australian data came in mixed, with a strong retail sales reading counteracted by a lower than expected trade balance figure. Meanwhile, the Chinese Caixin services PMI rose sharply, driving the measure to rise from 52.9 to 53.9.

UK, US and Europe: The services PMI theme looks set to continue, with European nations releasing their own version throughout the morning. The big focus will be upon the UK services PMI figure, with the release playing a key part in dictating GDP estimates for Q2. Meanwhile, the US markets are closed as the country celebrates Independence Day.
Economic calendar - key events and forecast (times in BST)
9.30am – UK services PMI (June): expected to fall to 53 from 54. Markets to watch: FTSE 100/250, GBP crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Sainsbury’s said that sales rose 0.8% in Q1, and were up 0.2% on a like-for-like basis. Price cuts had helped to boost performance.
SIG reported a 0.6% rise in first-half revenue, with currency improvements offsetting bad weather. Revenue was flat on a like-for-like basis.
National Express has secured a €1 billion contract to operate buses in Morocco, with 500 buses carrying 109 million passengers a year across 61 routes.
Topps Tiles suffered a 2.3% drop in like-for-like sales in the 13 weeks to 1 July.
BN FP upgraded to outperform at RBC
GFT upgraded to hold at Kepler Cheuvreux
Petra Diamonds upgraded to outperform at RBC
Brunello Cucinelli downgraded to hold at Berenberg
Please note: This information has been prpared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

US equities rallied late on Thursday to close higher in a wild session which saw the Dow finishing 1.1% up, after initially falling over 500 points earlier in the day. The S&P and Nasdaq also fell 2.8% and 3.3% respectively, but both ended in positive territory after the late surge.
Donald Trump is said to be considering an executive order which will ban US firms from using equipment built by Chinese companies ZTE and Huawei, according to a Reuters report.
Overall, European markets fell in their first trading session post-Christmas. The Dax saw a slide of 2.8%, while the FTSE fell as the day continued ending down 1.5%. The Cac followed by falling 1.1%.
Japanese 10-year government bond yields fell by three basis points taking it down to negative 0.004%.
Gold rose 0.5% to $1,281.40 an ounce, which is its highest level in over six months.
Crude oil also increased yesterday, the price increased to $45.75 a barrel - a 2.5% rise.
UK, US and Europe: Thursday's roller coaster session comes after the historic rally on Wall Street on Wednesday, as the Dow surged over 1,000 points marking its biggest daily point gain. The early sell-off in yesterdays session was sparked by renewed trade tensions between US-China and weak US consumer confidence data for December. Dave Campbell, principal at BOS explained that "The uncertainty will continue to weigh on the market," and "I think that's going to help drive the volatility as we roll forward because I don't think it's going to be a clean path to an agreement or some kind of resolution."
Large end of year FX swap rates: Please be aware that due to year end market factors we are seeing significant moves in the funding rates for most FX pairs. This has been observed across the market, although some pairs are looking to be worse affected than others (most notably if you are short US dollars). These factors include financial institutions balancing their books before the end of the year, putting a strain on certain currencies: Read more here
Economic calendar - key events and forecast (times in GMT)
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Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
The Defence Secretary has highlighted is "very deep concerns" regarding Huawei's involvement in the UK's mobile network upgrade.
Cannabis retailer Green Growth Brands Ltd. plans to launch a hostile takeover bid for Aphria Inc. (APHA), which values the marijuana producer at nearly $2.1 billion.
CentryLink, which provides telecommunication services to customers across 37 states, had significant internet and phone outages nationwide yesterday leaving its customers being unable to use their services.
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